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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
Commission file number 340-23520
QUINTILES TRANSNATIONAL CORP.
(Exact name of registrant as specified in its charter)
North Carolina 56-1714315
(State of incorporation) (I.R.S. Employer
Identification Number)
4709 Creekstone Drive, Suite 200
Durham, North Carolina 27703-8411
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (919) 941-2000
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment of this Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock at February
27, 1998 held by those persons deemed by the registrant to be non-affiliates was
approximately $2,873,071,061.
As of February 27, 1998 (the most recent practicable date), there were
75,001,244 shares of the registrant's Common Stock, $.01 par value per share,
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Document Where Incorporated
- -------- ------------------
1. Annual Report to Shareholders for the year ended
December 31, 1997 Part II
2. Proxy Statement for the Annual Meeting of Shareholders
to be held May 6, 1998 Part III
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QUINTILES TRANSNATIONAL CORP.
Form 10-K Annual Report
INDEX
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Page
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PART I............................................................................................................3
Item 1. Business..............................................................................................3
Item 2. Properties...........................................................................................14
Item 3. Legal Proceedings....................................................................................15
Item 4. Submission Of Matters To A Vote Of Security Holders..................................................15
PART II..........................................................................................................15
Item 5. Market For Registrant's Common Equity And Related Stockholder Matters................................15
Item 6. Selected Financial Data..............................................................................15
Item 7. Management's Discussion And Analysis Of Financial Condition And Results Of Operations................16
Item 7a. Quantitative And Qualitative Disclosures About Market Risk...........................................16
Item 8. Financial Statements And Supplementary Data..........................................................16
Item 9. Changes In And Disagreements With Accountants On Accounting And Financial Disclosure.................16
PART III.........................................................................................................16
Item 10. Directors And Executive Officers Of The Registrant...................................................16
Item 11. Executive Compensation...............................................................................16
Item 12. Security Ownership Of Certain Beneficial Owners And Management.......................................16
Item 13. Certain Relationships And Related Transactions.......................................................16
PART IV..........................................................................................................17
Item 14. Exhibits, Financial Statement Schedules, And Reports On Form 8-K.....................................17
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PART I
ITEM 1. BUSINESS
GENERAL
Quintiles Transnational Corp. ("Quintiles" or the "Company") is a
market leader in providing full-service contract research, sales, marketing and
healthcare policy consulting and health information management services to the
global pharmaceutical, biotechnology, medical device and healthcare industries.
Supported by its extensive information technology capabilities, the Company
provides a broad range of fully-integrated contract services in order to
accelerate the time from discovery to peak market acceptance of a new therapy.
Since its inception in 1982, the Company has continued to expand the
scope of its services and its geographic presence to support the needs of its
customers on a worldwide basis. The Company has implemented a number of
strategic initiatives to broaden its array of services and create new
opportunities for growth. In February 1997, the Company acquired Debra Chapman
Consulting Group Pty Limited and the Medical Alliances Australia Pty Limited,
enabling the Company to provide contract sales and healthcare recruiting
services in Australia and New Zealand alongside the Company's existing contract
research services in those countries. In June 1997, the Company acquired Butler
Communications, Inc. and its affiliated companies, including Butler Clinical
Recruitment, Inc., based in Raleigh, North Carolina, which specialize in
communication programs to accelerate the recruitment of patients for clinical
trials. Also in June 1997, the Company acquired Action International Marketing
Services Limited and its subsidiaries, including Medical Actions Communications
Limited (collectively, "MAC"), a leading international strategic medical
communications consultancy based in Egham, United Kingdom, enabling the Company
to add strategic marketing and communications to its services. In addition, the
Company acquired substantially all of the assets of Pharmacology Data Management
Corporation, a software development company located in Murray, Utah, in June
1997. In July 1997, the Company acquired CerebroVascular Advances, Inc. ("CVA"),
a contract research organization based in San Antonio, Texas that is a leader in
stroke clinical trials. In August 1997, the Company acquired Intelligent
Imaging, Inc., an information management company based in Plymouth Meeting,
Pennsylvania that specializes in providing digital medical imaging services for
clinical trials and the healthcare industry. Also in August 1997, the Company
completed two acquisitions in South Africa, Clindepharm International (Pty)
Limited, a contract research organization based in Centurion (near Pretoria),
and the business and assets of Rapid Deployment Services and its affiliated
companies, a contract sales and healthcare recruitment organization based in
Johannesburg. In February 1998, the Company made four acquisitions: Pharma
Networks N.V., a contract sales organization based in Brussels, Belgium;
Technology Assessment Group ("TAG"), an international health outcomes-research
consultancy based in San Francisco, California specializing in patient
registries and in evaluating the economic, quality-of-life and clinical effects
of drug therapies and disease management programs; T2A S.A., a French contract
sales and marketing organization; and More Biomedical Contract Research
Organization Ltd., a contract research organization based in Taiwan.
In addition to acquisitions, the Company also has entered strategic
alliances and made strategic investments that the Company believes will position
it to explore new opportunities and areas for potential growth. In November
1997, the Company established a preferred provider relationship with the
Cleveland Clinic for drug development investigator services in a dozen
therapeutic areas, including cardiology, AIDS, cancer, and molecular genetics.
Also in November 1997, the Company acquired a minority interest in Physicians'
Online, Inc. ("POL"), the leading Internet online service designed specifically
for the use of physicians. Earlier in the year, the Company joined with Core
Healthcare Limited, an India-based medical supplier, to form a joint venture
company, Quintiles Spectral (India)
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Limited, to provide clinical trials management services to Indian pharmaceutical
companies and international customers.
The Company added, including acquisitions, 39 new offices since January
1, 1997. In September 1997, the Company opened its 171,000 square foot clinical
trials material packaging and distribution center in Bathgate, Scotland. The
Bathgate facility also houses clinical data management services.
In March 1997, the Company completed a public offering of 11,040,000
shares of its Common Stock at a price to the public of $31.4375 per share. Of
the 11,040,000 shares sold, 2,830,000 were sold by the Company. Net proceeds to
the Company, which exclude underwriting discounts and offering expenses, were
approximately $84.6 million.
In October 1997, the Company's Board of Directors authorized a
two-for-one split of the Company's Common Stock, which was effected in December
in the form of a 100% stock dividend. All share numbers throughout this report
have been adjusted to reflect the effects of the stock split, unless otherwise
indicated.
SERVICES
The Company provides globally integrated contract research, sales,
marketing and healthcare policy consulting and health information management
services to the global pharmaceutical, biotechnology, medical device and
healthcare industries.
The Company provides its customers with a continuum of services. The
Company's service offerings are described below.
CLINICAL SERVICE OFFERINGS
The Company provides a full range of drug development services focused
on regulatory success, from strategic planning and preclinical services to
regulatory submission and approval.
Clinical Trial Services.
The Company offers comprehensive clinical trial services which are the
basis for obtaining regulatory approval for drugs and medical devices. The
Company has specialized business units and extensive experience in the
therapeutic areas of the central nervous system, cardiovascular, infectious and
respiratory diseases as well as in the field of oncology. The Company also has
significant clinical trials experience in the therapeutic areas of
endocrinological, gastroenterological, genitourinary and musculoskeletal
diseases. In addition, the 1997 acquisition of CVA enabled the Company to
provide clinical trials expertise in the area of stroke. The Company is
experienced in managing large trials involving several thousand patients at
several hundred sites and in multinational trials conducted simultaneously in
the Americas, Europe, the Asia-Pacific region and South Africa.
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The Company provides its customers with one or more of the following
core clinical trial services:
Study Design. The Company serves its customers by assisting in the
preparation of the study protocol and design of case report forms ("CRFs"). The
protocol defines the medical issues to be examined, the number of patients
required to produce statistically valid results, the period of time over which
they must be tracked, the frequency and dosage of drug administration and the
study procedures. The study's success often depends on the protocol's ability to
predict correctly the requirements of the applicable regulatory authorities.
Investigator Recruitment. During clinical trials, the drug is
administered to patients by physicians, also referred to as investigators, at
hospitals, clinics or other locations, also referred to as sites. The Company
has access to several thousand investigators who have conducted clinical trials
worldwide for the Company.
Study Monitoring. The Company provides study monitoring services which
include investigational site initiation, patient enrollment assistance and data
collection and clarification. Site visits serve to assure the quality of the
data, which are gathered according to good clinical practice ("GCP"), and to
meet the sponsors' and regulatory agencies' requirements as specified in the
study protocol.
Clinical Data Management and Biostatistical Services. The Company has
extensive experience in the United States and Europe in the creation of
scientific databases for all phases of the drug development process, including
the creation of customized databases to meet customer-specific formats,
integrated databases to support New Drug Application ("NDA") submissions and
databases in accordance with the United States Food and Drug Administration
("FDA") and European specifications.
Phase I Services. The Company's Phase I services include dose ranging,
bioavailability/bioequivalence studies, pharmacokinetic/pharmacodynamic
modeling, first administration to humans, multiple dose tolerance, dose effect
relationship and metabolism studies.
In addition to the Company's core clinical trial management services,
the Company provides its customers with the following specialized services:
Centralized Clinical Trial Laboratory. In addition to
providing comprehensive safety and efficacy testing for clinical trials, the
Company's centralized clinical trial laboratory provides site-specific study
materials, customized lab report design and specimen archival and management on
behalf of a study sponsor. The centralized laboratory offers a 48-hour
turnaround time for laboratory results and is capable of providing direct
electronic integration of laboratory data into safety and efficacy reports for
NDA submissions.
Formulation, Manufacturing and Packaging Services. The Company
offers services in the design and development of pharmaceutical dose forms as
well as the manufacture of study drug materials and placebos and the appropriate
packaging of these for double blinded studies. These services can expedite the
drug development process because clinical trials are often postponed by delays
in the manufacture of study drug materials. In September 1997, the Company
opened a new 171,000 square foot facility at Bathgate, Scotland which the
Company believes is one of the largest specialist clinical trial supplies units
in the world. The facility also houses a clinical data management center.
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Preclinical Services.
The Company's preclinical unit, provides customers with a wide array of
pre-clinical and toxicology services. These services are designed to produce the
data required to identify, quantify, and evaluate the risks to humans resulting
from the manufacture or use of pharmaceutical and biotechnology products,
including developmental and reproductive toxicology, genetic toxicology,
neurotoxicology, carcinogenicity testing, pharmacology, analytical chemistry,
pathology, metabolism and pharmacokinetics.
Regulatory Affairs Services.
The Company provides comprehensive medical and regulatory services for
its pharmaceutical and biotechnology customers. The Company's medical services
include medical oversight of studies, review and interpretation of adverse
experiences, medical writing of reports and study protocols and strategic
planning of drug development programs. Regulatory services for product
registration include regulatory strategy design, document preparation,
consultation, and liaison with various regulatory agencies. The Company's
regulatory affairs professionals help to define the steps necessary to obtain
registration in the most expeditious manner. The Company is able to provide such
services in numerous countries to meet its clients' needs to launch products in
multiple countries simultaneously.
Medical Device Services.
The Company's service offerings include: review of global strategies
for device development and introduction; identifying regulatory requirements in
targeted markets; clinical study design and planning; data management;
statistical analysis of report preparations; global clinical trial management
and monitoring capabilities; consultation on quality control and quality
assurance issues; regulatory filings; compliance with United States, European
and European Union regulations relating to medical devices; long-range planning
for multinational product launches; compliance with legislative requirements for
market access; post-marketing requirements; managing relationships with national
governments and regulatory authorities; and European pricing strategies.
SALES SERVICES
The Company provides a range of services focused on commercial success,
including late-phase clinical studies, health management services, and sales and
marketing.
Sales and Marketing Services.
The Company offers a flexible range of contract sales services which
are delivered through dedicated and syndicated sales teams. Dedicated sales
teams are comprised of sales representatives recruited by the Company in
accordance with customer specifications to conduct sales efforts for a
particular customer. Dedicated sales teams can be managed by the Company or can
report directly to the customer, depending on customer preference. In certain
circumstances, the Company can transfer an entire dedicated sales team to the
customer for an additional placement fee. Syndicated sales teams promote a
number of drugs for different customers and are generally managed directly by
the Company. The Company's contract sales teams form a highly skilled network of
professionals that afford customers substantial flexibility in selecting the
extent and cost of promoting products as well as their level of involvement in
managing the sales effort.
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The Company also provides a range of specialized marketing services
specifically for pharmaceutical companies aimed at influencing the decisions of
patients and physicians and accelerating the acceptance of drugs into treatment
guidelines and formularies. Such services are typically purchased by the
marketing departments of pharmaceutical companies. The Company believes that its
commercial orientation, clinical and promotional expertise and international
experience enable it to tailor programs to specific customer needs in a wide
range of geographic markets and therapeutic areas.
Late-Phase Clinical Studies.
The Company's services, designed primarily for Phase IIIb and Phase IV
clinical trials, include post-submission studies in support of marketing claims,
post-marketing surveillance and health management support programs. Such
services are designed and implemented using clinical and health management
programs to promote a favorable environment for new product introductions in
advance of the product launch and assist in sales generation post-launch.
DISEASE MANAGEMENT AND HEALTHCARE SERVICES
The Company provides healthcare policy research, pharmacoeconomics
analysis and management consulting focused on improving the quality,
availability and cost-effectiveness of healthcare.
Disease Management Services.
The Company's disease management services focus on applying healthcare
outcomes analysis to the economic valuation of drugs and the treatment of
diseases. The Company's February 1998 acquisition of TAG adds specialization in
pharmacoeconomics, as well as expertise in developing patient registries and
designing disease management programs. Together, these services enable
regulators, healthcare providers, pharmaceutical and biotechnology companies and
third parties to assess the pricing and cost-effectiveness of new medical
therapies.
Healthcare Policy Research and Consulting.
The Company's healthcare policy research and healthcare consulting
services are designed to assist customers in evaluating healthcare programs and
policies and developing strategies for doing business in the highly regulated
and rapidly changing healthcare environment. These services include corporate
strategic planning and management, program and policy development, financial and
cost-effectiveness analysis, evaluation design, microsimulation modeling and
data analysis across five general practice areas: public health and finance
policy, healthcare organizations, economic analysis, managed care and medical
technology. The Company has access to more than 117 healthcare-related databases
and has developed the expertise to analyze such complex data to respond to its
clients' information needs. These services represent the core competencies of
The Lewin Group, a nationally-recognized healthcare consulting firm acquired by
the Company in 1996.
STRATEGIC MARKETING AND COMMUNICATIONS SERVICES
The Company provides strategic marketing and communications services to
international pharmaceutical companies beginning in the early stages of product
development and continuing through product launch and peak market penetration.
These services include communications strategy and planning, product positioning
and branding, opinion leader development, symposia organization, patient
education, and sponsored publications. As early as Phase II trials, the Company
begins providing
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marketing information to help shape data and influence opinion leader support
for a new drug. Such services represent the core competencies of MAC, a leading
strategic medical communications consultancy acquired by the Company in 1997.
INFORMATION TECHNOLOGY
The foundation for the Company's information systems is a wide area
network, which the Company continues to improve and expand. The network links
approximately 50 local networks and interconnects over 6,000 office-based and
3,500 mobile microcomputers and systems worldwide. The Company's network enables
the exchange of information among the Company's offices on a worldwide basis,
facilitating concurrent multinational clinical trials and regulatory
submissions. Customers also are able to gain direct access to key up-to-date
data related to their products in testing, such as adverse events, CRFs and
clinical laboratory testing results. Customers using the Company's sales and
marketing services can likewise access information related to sales calls and
provide feedback about the performance of the Company's sales representatives.
The Company has an ongoing program of developing advanced data capture and data
management systems designed to speed the drug development process and sales
force automation systems for planning, targeting, reporting, analysis and
communication of sales and marketing activities. These systems allow the Company
to centralize management of sales activities across a broad geographic area. The
Company also uses an advanced system for screening and tracking resumes as the
cornerstone of its recruiting of qualified sales representatives.
In 1997, the Company further expanded its information technology
capabilities, starting with far-reaching infrastructure upgrades.
FaxCollect(TM), the Company's new data capture software, uses ordinary fax
machines at study sites to transmit forms to the Company's processing centers
for automated data acquisition and storage. The Company's acquired digital
medical imaging software allows investigators to gather accurate, consistent and
precise measurements, to zoom in on images, and to adjust light and darkness for
clarity, all of which enable the compilation of an accurate record for
regulatory authorities to follow. The Company also has introduced QuERxI(TM)
(Quality Enhancement through Risk Improvement), software that enables physician
groups and health plans which are at risk for the costs of drugs to analyze
prescribing patterns and thereby improve health outcomes or identify cost
savings. The Company's minority investment in POL creates an opportunity for the
Company to explore with POL a possible extension of POL's services to the
integration of secure intranets in recruiting investigators and patients for
clinical trials, managing investigator sites, and in the transfer of clinical
trial data. In addition, the Company's relationship with POL also offers
possibilities for extending the Company's contract marketing efforts on behalf
of customers by disseminating product information to doctors.
Some of the internally developed systems which the Company uses to
facilitate its services are described below:
FaxCollect(TM) Advanced data capture system which uses faxed images and
OCR technology.
InnTrax(R) Computerized clinical trial administrative management
system.
ITMS(TM) Sales force automation (electronic territory management)
system.
QTONE(TM) Touchtone and voice response patient information system.
QSTAR(TM) Imaging technology which reduces time and minimizes
errors in data management by routing and tracking CRF
images.
QLIMS(TM) Laboratory information management system which provides
protocol-specific validity checks.
QNET(TM) System which allows online monitoring and review of
laboratory test data.
QuERxI(TM) Software for analyzing prescribing patterns to help
improve health outcomes or identify cost savings.
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Genius(TM) Digital medical imaging software which enables image
enhancement, reliable measurements and the compilation
of accurate records.
Pyramid(TM) Digital medical imaging software which enables image
enhancement, reliable measurements and the compilation
of accurate records.
The Company has appointed a Year 2000 Project Team to conduct an
assessment of the Company's operations worldwide from an internal, supplier and
customer perspective. The assessment, which is currently in progress, addresses
all computer systems, applications and any other systems that may be vulnerable
to the Year 2000 Issue. As part of the assessment, the Company is preparing
detailed plans to address Year 2000 Issues. The Company is utilizing both
internal and external resources to implement the plans. The Company currently
anticipates addressing all business critical systems during 1998 and will
address follow-up issues and all remaining systems during 1999. While the
Company currently does not believe that the costs associated with addressing
Year 2000 Issues will be material to the Company's financial statements,
business or operations, the Company's assessment of Year 2000 Issues is ongoing
and there can be no assurance that Year 2000 Issues or the costs of addressing
them will not have a material impact on the Company's financial statements,
business or operations.
CUSTOMERS AND MARKETING
The Company coordinates its business development efforts across its
service offerings through integrated business development functions, which
direct the activities of business development personnel in each of the Company's
United States locations, as well as other key locations throughout Europe,
Asia-Pacific, Canada and Latin America.
The Company is a market leader in providing full-service contract
research, sales, marketing and healthcare policy consulting and health
information management services to the global pharmaceutical, biotechnology,
medical device and healthcare industries. For the year ended December 31, 1997,
approximately 50.9% of the Company's net revenue was attributed to operations in
the Americas, 46.3 % to European and African operations and 2.8% to Asia-Pacific
operations. Refer to the Notes to the Company's Consolidated Financial
Statements incorporated by reference herein, for further details regarding the
Company's foreign and domestic operations. Approximately 52%, 59% and 63% of the
Company's net revenue was attributed to clinical and data management services in
1997, 1996 and 1995, respectively, and approximately 36%, 28% and 24% of the
Company's 1997, 1996, and 1995 net revenue, respectively, was attributed to its
sales and marketing services. Neither the Company's disease management,
healthcare consulting and strategic marketing and communications services, nor
its laboratory, formulation and packaging services accounted for more than 10%
of the Company's net revenue in any of these years.
The Company has in the past derived, and may in the future derive, a
significant portion of its net revenue from a relatively limited number of major
projects or customers. As pharmaceutical companies continue to outsource large
projects and studies to fewer full-service providers, the concentration of
business could increase. The Company may experience concentration in 1998 and in
future years. See "Risk Factors" attached hereto as Exhibit 99.01.
COMPETITION
The market for the Company's contract research services is highly
competitive, and the Company competes against traditional contract research
organizations ("CROs") and the in-house research and development departments of
pharmaceutical companies, as well as universities and teaching hospitals. Among
the traditional CROs, there are several hundred small, limited-service
providers, several medium-
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sized firms, and only a few full-service companies with global capabilities.
Consolidation among CROs likely will result in greater competition among the
larger contract research providers for customers and acquisition candidates. The
Company's primary contract research competitors include Covance Inc.,
Pharmaceutical Product Development, Inc., PAREXEL International Corp. and
ClinTrials Research, Inc. In sales and marketing services, the Company competes
against the in-house sales and marketing departments of pharmaceutical companies
and other contract sales organizations in each country in which it operates. The
Company also competes against national consulting firms offering healthcare
consulting and medical communications services, including boutique firms
specializing in the healthcare industry and the healthcare departments of large
firms.
Competitive factors for contract research services include previous
experience, medical and scientific experience in specific therapeutic areas, the
quality of contract research, the ability to organize and manage large-scale
trials on a global basis, the ability to manage large and complex medical
databases, the ability to provide statistical and regulatory services, the
ability to recruit investigators, the ability to integrate information
technology with systems to improve the efficiency of contract research, an
international presence with strategically located facilities, financial
viability, and price. The primary competitive factors affecting contract sales
and marketing services are the proven ability to quickly assemble, train and
manage large qualified sales forces to handle broad scale launches of new drugs
and price. Competitive factors affecting healthcare consulting and medical
communications services include experience, reputation and price. The Company
believes that it competes favorably in these areas. In addition, the Company
believes that the synergies arising from integrating contract research services
with contract sales and marketing services, supported by global operations and
information technology, differentiate the Company from its competitors.
EMPLOYEES
The Company has approximately 10,900 employees, comprised of
approximately 5,200 in the Americas, 5,400 in Europe and Africa and 300 in the
Asia-Pacific region, and 89 offices in 26 countries.
CONTRACT REVENUE
Most of the Company's contracts are fixed price, with some variable
components, and range in duration from a few months to several years. Generally,
a portion of the contract fee is paid at the time the project is initiated with
performance-based installments payable over the contract duration. Most
contracts are terminable upon 15-90 days' notice by the customer, and typically
provide for termination or winding down fees. Also, some customer contracts call
for the customer to reimburse the Company at cost for certain items such as
investigator payments and travel. The Company recognizes net revenue from its
contracts, which excludes reimbursed costs, on a percentage-of-completion or per
diem basis as work is performed. Consistent with prior years' practice, the
Company considers net revenue its primary measure of revenue growth.
BACKLOG
The Company reports backlog based on anticipated net revenue from
uncompleted projects which have been authorized by the customer, through a
written contract or otherwise. Once work begins on a project, net revenue is
recognized over the duration of the project. Using this method of reporting
backlog, at December 31, 1997, backlog was approximately $1.06 billion, as
compared to approximately $708 million at December 31, 1996.
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The Company believes that backlog is not a consistent indicator of
future results because backlog can be affected by a number of factors, including
the variable size and duration of projects, many of which are performed over
several years. Additionally, projects may be terminated by the customer or
delayed by regulatory authorities. Moreover, the scope of work can change during
the course of a project. See "Risk Factors -- Loss or Delay of Large Contracts;
Variability of Backlog; Fixed Price Nature of Contracts" attached hereto as
Exhibit 99.01.
POTENTIAL LIABILITY
In connection with its provision of contract research services, the
Company contracts with physicians to serve as investigators in conducting
clinical trials to test new drugs on human volunteers. Such testing creates risk
of liability for personal injury to or death of volunteers, particularly to
volunteers with life-threatening illnesses, resulting from adverse reactions to
the drugs administered. Although the Company does not believe it is legally
accountable for the medical care rendered by third party investigators, it is
possible that the Company could be held liable for the claims and expenses
arising from any professional malpractice of the investigators with whom it
contracts or in the event of personal injury to or death of persons
participating in clinical trials. In addition, as a result of its Phase I
clinical trial facilities, the Company could be liable for the general risks
associated with a Phase I facility including, but not limited to, adverse events
resulting from the administration of drugs to clinical trial participants or the
professional malpractice of Phase I medical care providers. The Company also
could be held liable for errors or omissions in connection with the services it
performs through each of its service groups. The Company believes that its risks
are reduced by contractual indemnification provisions with customers and
investigators, insurance maintained by customers and investigators and by the
Company, and various regulatory requirements, including the use of institutional
review boards and the procurement of each volunteer's informed consent to
participate in the study. The contractual indemnifications generally do not
fully protect the Company against certain of its own actions such as negligence.
The contractual arrangements are subject to negotiation with customers and the
terms and scope of such indemnification vary from customer to customer and from
trial to trial. The financial performance of these indemnities is not secured.
Therefore, the Company bears the risk that the indemnifying party may not have
the financial ability to fulfill its indemnification obligations. The Company
maintains professional liability insurance that covers worldwide territories in
which the Company currently does business and includes drug safety issues as
well as data processing errors and omissions. The Company could be materially
and adversely affected if it were required to pay damages or bear the costs of
defending any claim outside the scope of or in excess of a contractual
indemnification provision or beyond the level of insurance coverage or in the
event that an indemnifying party does not fulfill its indemnification
obligations.
GOVERNMENT REGULATION
The preclinical, laboratory and clinical trial supply services
performed by the Company are subject to various regulatory requirements designed
to ensure the quality and integrity of the data or products of these services.
The industry standard for conducting preclinical and laboratory testing is
embodied in the good laboratory practice ("GLP") regulations. The requirements
for facilities engaging in clinical trial supplies preparation, labeling and
distribution are set forth in the good manufacturing practice ("GMP")
regulations. GLP and GMP regulations have been mandated by the FDA and the
Department of Health in the United Kingdom, and adopted by similar regulatory
authorities in other countries. GLP and GMP stipulate requirements for
facilities, equipment, supplies and personnel engaged in the conduct of studies
to which these regulations apply. The regulations require that written,
standardized procedures are followed during the conduct of studies and for the
recording, reporting and retention of study data and records. To help assure
compliance, the Company has established Quality
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Assurance programs at its preclinical, laboratory and clinical trial supply
facilities which monitor ongoing compliance with GLP and GMP regulations by
auditing study data and conducting regular inspections of testing procedures.
The industry standard for the conduct of clinical research and
development studies is embodied in GCP regulations and guidelines. The FDA and
many other regulatory authorities require that study results and data to be
submitted to such authorities be based on studies conducted in accordance
with GCP provisions. These provisions include: (i) complying with specific
regulations governing the selection of qualified investigators; (ii) obtaining
specific written commitments from the investigators; (iii) verifying that
patient informed consent is obtained; (iv) instructing investigators to maintain
records and reports; (v) verifying drug or device accountability; and (vi)
permitting appropriate governmental authorities access to data for their review.
Records for clinical studies must be maintained for specified periods for
inspection by the FDA during audits. Non-compliance with GCP requirements can
result in the disqualification of data collected during the clinical trial.
The Company's standard operating procedures related to clinical studies
are written in accordance with regulations and guidelines appropriate to the
region where they will be used, thus ensuring compliance with GCP. Within
Europe, all work is carried out in accordance with the European Community Note
For Guidance "Good Clinical Practice for Trials on Medicinal Products in the
European Community." Studies beginning after January 17, 1997 to be submitted to
the European Medicines Evaluation Agency must meet the requirements of the
International Congress of Harmonization - GCP. In addition, FDA regulations and
guidelines serve as a basis for the Company's North American standard operating
procedures. The Company's offices in the Asia-Pacific region have developed
standard operating procedures in accordance with their local requirements and in
harmony with the Company's North American and European operations. From a
transnational perspective, the Company has implemented common standard operating
procedures across regions to assure consistency whenever it is feasible to do
so.
The Company's sales and marketing services are subject to detailed and
comprehensive regulation in each geographic market in which it operates. Such
regulation relates, among other things, to the qualifications of sales
representatives and the use of healthcare professionals in sales functions. In
the United Kingdom, the Company complies with the ABPI Code of Practice for the
Pharmaceutical Industry, which prescribes, among other things, an examination
that must be passed by sales representatives within two years of their taking up
employment, and which prevents the employment of healthcare professionals as
sales representatives. Similar guidelines are in effect in other countries where
the Company offers sales and marketing services.
The Company's United States laboratories are subject to licensing and
regulation under federal, state and local laws relating to hazard communication
and employee right-to-know regulations, the handling and disposal of medical
specimens and hazardous waste and radioactive materials, as well as the safety
and health of laboratory employees. All of the Company's laboratories are
operated in material compliance with applicable federal and state laws and
regulations relating to the storage and disposal of all laboratory specimens
including the regulations of the Environmental Protection Agency, the Nuclear
Regulatory Commission, the Department of Transportation, the National Fire
Protection Agency and the Resource Conservation and Recovery Act. The use of
controlled substances in testing for drugs of abuse is regulated by the United
States Drug Enforcement Administration (the "DEA"). All of the Company's
laboratories using controlled substances for testing purposes are licensed by
the DEA. The regulations of the United States Department of Transportation, the
Public Health Service and the Postal Service apply to the surface and air
transportation of laboratory specimens. The Company's laboratories also comply
with International Air Transport Association regulations, which govern
international shipments of
12
<PAGE> 13
laboratory specimens. Furthermore, when the materials are sent to a foreign
country, the transportation of such materials becomes subject to the laws, rules
and regulations of such foreign country.
In addition to its comprehensive regulation of safety in the workplace,
the United States Occupational Safety and Health Administration has established
extensive requirements relating to workplace safety for healthcare employers
whose workers may be exposed to blood-borne pathogens such as HIV and the
hepatitis B virus. These regulations, among other things, require work practice
controls, protective clothing and equipment, training, medical follow-up,
vaccinations and other measures designed to minimize exposure to chemicals, and
transmission of blood-borne and airborne pathogens. Furthermore, relevant
employees of the Company receive initial and periodic training to ensure
compliance with applicable hazardous materials regulations and health and safety
guidelines. Although the Company believes that it is currently in compliance in
all material respects with such federal, state and local laws, failure to comply
could subject the Company to denial of the right to conduct business, fines,
criminal penalties and other enforcement actions.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table provides information on the executive officers of the
Company. There are no family relationships between any of the executive officers
or directors of the Company.
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C> <C>
Dennis B. Gillings, Ph.D. 53 Chairman of the Board of Directors and Chief Executive Officer
Santo J. Costa 52 President, Chief Operating Officer and Director
Rachel R. Selisker 42 Chief Financial Officer, Executive Vice President Finance and Director
Gregory D. Porter 41 Executive Vice President, Chief Administrative and Legal Officer and
Secretary
Ludo J. Reynders, Ph.D. 44 Chief Executive Officer, Quintiles CRO, and Director
David F. White 54 Chief Executive Officer, Innovex Limited, and Director
Lawrence S. Lewin 59 Chief Executive Officer, The Lewin Group, and Director
</TABLE>
Dennis B. Gillings, Ph.D. founded the Company in 1982 and has served as
Chief Executive Officer and Chairman of the Board of Directors since its
inception. From 1972 to 1988, Dr. Gillings served as a professor in the
Department of Biostatistics at the University of North Carolina at Chapel Hill.
During his tenure as a professor, he was active in statistical consulting for
the pharmaceutical industry. Dr. Gillings currently serves on the Board of
Directors of the University of North Carolina School of Public Health
Foundation. Dr. Gillings has been nominated for election as a director of
Triangle Pharmaceuticals, Inc. Dr. Gillings has been published widely in
scientific and medical journals. Dr. Gillings received a Diploma in Mathematical
Statistics from the University of Cambridge and a Ph.D. in Mathematics from the
University of Exeter.
Santo J. Costa became President and Chief Operating Officer of the
Company on April 1, 1994 and has been a director since April 1994. From July 1,
1993 to March 31, 1994, Mr. Costa directed the affairs of his own consulting
firm, Santo J. Costa & Associates, which focused on pharmaceutical and
biotechnology companies. Prior to June 30, 1993, Mr. Costa served seven years at
Glaxo, Inc., a pharmaceutical company, as Senior Vice President Administration
and General Counsel and a member of the Board of Directors. Mr. Costa serves as
a director of NPS Pharmaceuticals Inc. Mr. Costa received a law degree from St.
John's University.
13
<PAGE> 14
Rachel R. Selisker, a certified public accountant, serves as Executive
Vice President Finance and Chief Financial Officer for the Company and has been
the Company's principal financial officer since 1987. Ms. Selisker has served as
a director of the Company since November 1995. From 1981 to 1987, Ms. Selisker
was with the accounting firm of Oppenheim, Appel, Dixon & Co. in Raleigh, North
Carolina. Ms. Selisker serves on the Advisory Board for the Accounting
Curriculum at Wake Technical Community College.
Gregory D. Porter has served as Executive Vice President, Chief
Administrative and Legal Officer and Secretary since January 1997. Mr. Porter
joined the Company in September 1994 as Vice President, General Counsel and
Secretary. From 1982 to September 1994, Mr. Porter was in the private practice
of law. From 1981 to 1982, Mr. Porter clerked with the Honorable William Matthew
Byrne of the U.S. District Court for the Central District of California. Mr.
Porter received his law degree from the University of North Carolina at Chapel
Hill.
Ludo J. Reynders, Ph.D. serves as Chief Executive Officer of Quintiles
CRO. He has managed European clinical operations since joining the Company in
1988. Dr. Reynders has served as a director of the Company since January 1995.
Prior to joining the Company, Dr. Reynders managed the biostatistics and data
management department of the Bristol-Myers Co. Pharmaceutical Research and
Development Division, located in Brussels, Belgium. Dr. Reynders serves as a
director of Oxford Asymmetry International plc. Dr. Reynders received an M.S.
and Ph.D. in Applied Sciences from the University of Louvain, Louvain, Belgium.
David F. White serves as the Chief Executive Officer of Innovex
Limited. Mr. White has served as a director of the Company since November 1997.
Mr. White joined Innovex Limited as Group Chief Executive Officer in September
1994 from ICI plc, where he had a broad career principally in the international
pharmaceutical business. After successive appointments as Managing Director of
Stuart Pharmaceuticals from June 1984 to October 1985 and General Manager, ICI
Pharmaceuticals (U.K.) from November 1985 to December 1988, he was promoted to
lead the global plastics and acrylics businesses, culminating in an assignment
to steer the integration of Dupont Acrylics into ICI Acrylics.
Lawrence S. Lewin has served as the Chief Executive Officer of The
Lewin Group, Inc., a subsidiary of the Company, since May 1996. Mr. Lewin has
been a director of the Company since June 1996. Between November 1992 and May
1996, Mr. Lewin served as the Chairman and Chief Executive Officer of Lewin-VHI,
Inc., a healthcare consulting firm specializing in performing economic analyses,
product profiles, and strategic development for healthcare reform and medical
reimbursement and the establishment of medical guidelines. Mr. Lewin serves as a
director of Apache Medical Systems, Inc. and as a member of the advisory boards
of the Hambrecht & Quist Healthcare Investors Fund and the Hambrecht & Quist
Life Sciences Fund. Mr. Lewin received an M.B.A. from Harvard Business School.
ITEM 2. PROPERTIES
The Company has 89 offices located in 26 countries. The Company's
executive headquarters and one of its operating units are located adjacent to
Research Triangle Park, North Carolina. The Company also leases facilities in
Mountain View, California; San Diego, California; San Francisco, California;
Atlanta, Georgia; Smyrna, Georgia; Lenexa, Kansas; Gaithersburg, Maryland;
Rockville, Maryland; Cambridge, Massachusetts; Cranford, New Jersey; Parsippany,
New Jersey; Scotch Plains, New Jersey; Morrisville, North Carolina; Raleigh,
North Carolina; Plymouth Meeting, Pennsylvania; Austin, Texas; San Antonio,
Texas; Salt Lake City, Utah; Arlington, Virginia; Fairfax, Virginia; Buenos
Aires, Argentina; Adelaide, Australia; Melbourne, Australia; Sydney, Australia;
Vienna, Austria; Brussels, Belgium; Louvain-La-Neuve, Belgium; Mechelen,
Belgium; Sofia, Bulgaria; Montreal, Canada; Beijing, China; Hong Kong, China;
Shanghai, China; Copenhagen, Denmark; Battle, England; Bracknell, England;
Egham, England; Esher, England; Ledbury, England; London, England; Marlow,
14
<PAGE> 15
England; Staines, England; Espon, Finland; Neuilly sur Seine, France; Paris,
France; Strasbourg, France; Freiburg, Germany; Neu-Isenberg, Germany; Mannheim,
Germany; Munich, Germany; Weil am Rhein, Germany; Ahmedabad, India; Dublin,
Ireland; Tel Aviv, Israel; Milan, Italy; Osaka, Japan; Tokyo, Japan; Mexico
City, Mexico; Hoofddorp, The Netherlands; Schiedam, The Netherlands; Auckland,
New Zealand; Moscow, Russia; Irene, South Africa; Johannesburg, South Africa;
Tyger Valley, South Africa; Edinburgh, Scotland; Singapore; Barcelona, Spain;
Madrid, Spain; and Uppsala, Sweden. In addition, the Company owns facilities in
Ledbury, England; Lenexa, Kansas; Riccarton, Scotland; Bathgate, Scotland;
London, England; and Freiburg, Germany. Quintiles believes that its facilities
are adequate for the Company's operations and that suitable additional space
will be available when needed.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings are pending to which Quintiles, its
subsidiaries or any of their properties are subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information relating to the market for the Company's Common Stock is
incorporated by reference from page 48 and page 51 of the Company's 1997
Annual Report to Shareholders included as Exhibit 13 to this report.
RECENT SALES OF UNREGISTERED SECURITIES
In November 1997, the Company issued an aggregate of 300,000 shares of
Common Stock to The Cleveland Clinic Foundation in a private placement
transaction. The issuance of such shares was made in reliance on a claim of
exemption pursuant to Section 4(2) of the Securities Act of 1933 as amended (the
"Act") as a transaction not involving any public offering and in reliance upon
Regulation D.
In 1997, options to purchase 188,970 shares of Common Stock were
exercised at an average exercise price of $2.9305 per share in reliance on Rule
701 under the Act. Such options were issued by the Company prior to becoming
subject to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, pursuant to its Nonqualified Employee Incentive Stock
Option Plan.
ITEM 6. SELECTED FINANCIAL DATA
This information is incorporated by reference from page 22,
"Selected Consolidated Financial Data", of the Company's 1997 Annual Report to
Shareholders included as Exhibit 13 to this report.
15
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This information is incorporated by reference from pages 23-28,
"Management's Discussion and Analysis", of the Company's 1997 Annual Report to
Shareholders included as Exhibit 13 to this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary financial information are
incorporated by reference from pages 29-50 of the Company's 1997 Annual Report
to Shareholders included as Exhibit 13 to this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information on the Company's directors is incorporated by reference
from the Company's definitive proxy statement to be filed with respect to the
Annual Meeting of Shareholders to be held May 6, 1998. Information on the
Company's executive officers is included under the caption "Executive Officers
of the Registrant" on page 13 of this report.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference from the Company's
definitive proxy statement to be filed with respect to the Annual Meeting of
Shareholders to be held May 6, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference from the Company's
definitive proxy statement to be filed with respect to the Annual Meeting of
Shareholders to be held May 6, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference from the Company's
definitive proxy statement to be filed with respect to the Annual Meeting of
Shareholders to be held May 6, 1998.
16
<PAGE> 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. The following financial statements and
supplementary data included in the 1997 Annual Report to Shareholders, filed as
Exhibit 13 hereto, are incorporated by reference in Item 8 of this report.
<TABLE>
<CAPTION>
Annual Report to
Financial Statements Form 10-K Page Shareholders Page
-------------------- -------------- -----------------
<S> <C> <C> <C>
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995 16 29
Consolidated Balance Sheets as of December 31, 1997 and 1996 16 30-31
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995 16 32-33
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1997, 1996 and 1995 16 34
Notes to Consolidated Financial Statements 16 35-49
Report of Independent Auditors 16 50
</TABLE>
(a)(2) Financial Statement Schedules. All applicable financial statement
schedules required under Regulation S-X have been included in the Notes to the
Consolidated Financial Statements.
(a)(3) Exhibits. The exhibits required by Item 601 of Regulation S-K are listed
below.
Exhibit Description
- ------- -----------
3.01(1) Amended and Restated Articles of Incorporation, as amended
3.02(2) Amended and Restated Bylaws
4.01(3) Indenture, dated as of May 17, 1996, between the Company
and Marine Midland Bank, as Trustee, with respect to the
Company's 4.25% Convertible Subordinated Notes due May
31, 2000
4.02 Amended and Restated Articles of Incorporation, as amended
(see Exhibit 3.01)
4.03 Amended and Restated Bylaws (see Exhibit 3.02)
4.04(4) Specimen certificate for Common Stock, $0.01 par value per
share
17
<PAGE> 18
Exhibit Description
- ------- -----------
4.05(1) Form of the Company's 4.25% Convertible Subordinated Notes
in Unrestricted Global Form
4.06(1) Form of the Company's 4.25% Convertible Subordinated Notes
in Certificated Form.
4.07(3) Registration Rights Agreement dated as of May 17, 1996,
by and among the Company, Goldman Sachs International and
Smith Barney, Inc.
10.01(4)(5) Employment Agreement, dated February 22, 1994, by and between
Dr. Dennis B. Gillings and the Company
10.02(4)(5)(6) Employment Agreement, dated February 22, 1994, by and between
Santo J. Costa and the Company, as amended on November 4,
1994
10.03(5)(6) Employment Agreement, dated January 1, 1995, by and between
Rachel R. Selisker and the Company
10.04(4)(5) Employment Agreement, dated January 15, 1988, by and between
Dr. Ludo Reynders and Quintiles (UK) Limited
10.05(5)(7) Employment Agreement, dated November 29, 1996, by and between
Barrie S. Haigh and the Company
10.06(5)(7) Deed of Non-Competition, dated November 29, 1996, by and
between Barrie S. Haigh and the Company
10.07(5)(7) Letter Agreement dated August 11, 1997 between Barrie S.
Haigh and the Company
10.08(5)(7) Employment Agreement, dated May 13, 1996, by and between
Lawrence S. Lewin and The Lewin Group, Inc. (a wholly-owned
subsidiary of the Company)
10.09(5)(7) Service Agreement, dated September 2, 1994, between Innovex
Holdings Limited and David F. White
10.10(5)(7) Deed of Non-Competition, dated November 29, 1996, between
David F. White and the Company
10.11(2)(5) Employment letter agreement, dated May 31, 1994, by and
between Gregory D. Porter and the Company
10.12(4)(5) Non-Qualified Employee Incentive Stock Option Plan
10.13(4)(5) Equity Compensation Plan
10.14(5)(6) Amended and Restated Employee Stock Ownership Plan and Trust
10.15(4)(5) Quintiles (UK) Limited Approved Profit Sharing Scheme
18
<PAGE> 19
Exhibit Description
- ------- -----------
10.16(5) Quintiles Transnational Corp. Deferred Compensation Plan
10.17(2)(5) Quintiles Group Executive Share Option Scheme
10.18(5)(9) Quintiles Employee Stock Purchase Plan
10.19(5)(9) Innovex Limited 1996 Unapproved Executive Share Option Scheme
10.20(5)(10) Quintiles/Lewin Stock Option Plan
10.21(5)(11) Quintiles Transnational Corp. Nonqualified Stock Option Plan
10.22(4) Lease dated January 20, 1992, by and between Durham Park,
operating as a Joint Venture, Imperial Center, and
Quintiles, Inc. as amended on April 6, 1992, April 16, 1992,
May 12, 1992, May 13, 1992, March 10, 1993, and
September 1, 1993
10.23(2)(6) Lease dated September 8, 1994, by and between Petula
Associates Ltd. and Quintiles, Inc., as amended on September
30, 1994, January 10, 1995, April 12, 1995 and August 11,
1995
10.24(4) Lease Agreement, dated December 9, 1992, by and between South
Bay/Copley Joint Venture and the Company, as amended March 3,
1993
10.25 (6) Lease, effective January 1, 1995, by and between The Norwich
Union Life Insurance Society, Earlsfort Centre and Quintiles
Ireland Limited and guaranteed by Quintiles, Inc.
10.26 (4) Leases, dated December 1, 1993, by and between The Norwich
Union Life Insurance Society, Quintiles (UK) Limited, and the
Company (as surety)
10.27(2) Lease, dated August 31, 1995, by and between California
Public Employees' Retirement System and International
Clinical Research Corp., as amended October 25, 1995
10.28(7) Lease, dated November 6, 1996, by and between Seagate
Technology, Inc. and Innovex
10.29(7) Lease, dated December 20, 1996, by and between The Norwich
Union Life Insurance Society and Quintiles (U.K.) Limited
10.30(7) Lease, dated August 14, 1996, by and between PRUBETA-3 and
Innovex, Inc.
10.31(7) Lease, dated November 30, 1995, by and between Lenexa
Industrial Park, Inc. and Innovex, Inc.
10.32(7) Sublease, dated January 18, 1996, by and between Legent
Corporation and Innovex, Inc.
19
<PAGE> 20
Exhibit Description
- ------- -----------
10.33 Underlease, dated November 28, 1997, by and between PDFM
Limited and Quintiles (UK) Limited and guaranteed by the
Company
10.34(12) Agreement for the Provision of Research Services and Lease
of Business Assets dated as of March 3, 1995, between Syntex
Pharmaceuticals Limited, Quintiles Scotland Limited,
Quintiles (UK) Limited, and Roche Products Limited
10.35(2)(5) Consulting Agreement dated as of March 15, 1995 between the
Company and A.M. Pappas & Associates, L.L.C.
10.36(13) Merger Agreement, dated as of September 16, 1996, by and
among the Company, BRI Acquisition Corp. and BRI
International, Inc.
10.37(14) Share Exchange Agreement, dated as of October 4, 1996, among
Innovex Limited, the Company and the shareholders of Innovex
Limited
10.38(15) Registration Rights Agreement, dated as of November 29, 1996,
by and among the Company and the shareholders of Innovex
Limited
10.39(16) Supplemental Agreement to Registration Rights Agreement
filed as Exhibit 10.38 hereto
10.40(17) Supplemental Agreement No. 2 to Registration Rights Agreement
filed as Exhibit 10.38 hereto
10.41(18) Asset Purchase Agreement, dated as of April 16, 1996, among
The Lewin Group, Inc., the Company, Lewin-VHI, Inc., Value
Health, Inc., Lawrence S. Lewin and Robert J. Rubin
10.42(7) Underwriting Agreement, dated March 6, 1997, by and
between the Company and Goldman, Sachs & Co., Morgan
Stanley & Co. Incorporated, Smith Barney Inc. and William
Blair & Company, L.L.C., as representatives of the
several underwriters named in Schedule 1 thereto
10.43(7) Underwriting Agreement (International Version), dated March
6, 1997, by and between the Company and Goldman Sachs
International, Morgan Stanley & Co. International Limited,
Smith Barney Inc. and William Blair & Company, L.L.C., as
representatives of the several underwriters named in
Schedule I thereto
10.44(19) Underwriting Agreement, dated December 4, 1997, among the
Company, the Selling Shareholders listed in Schedule I
attached thereto and Morgan Stanley & Co. Incorporated
13 Portions of the Annual Report to Shareholders for the fiscal
year ended December 31, 1997, which are incorporated herein
by reference
21 Subsidiaries of the Company
20
<PAGE> 21
Exhibit Description
- ------- -----------
23.01 Consent of Ernst & Young LLP
23.02 Consent of Coopers & Lybrand L.L.P.
23.03 Consent of KPMG
24 Powers of Attorney (included on the signature page hereof)
27.01 Restated Financial Data Schedule (for SEC use only)
27.02 Restated Financial Data Schedule (for SEC use only)
27.03 Restated Financial Data Schedule (for SEC use only)
27.04 Restated Financial Data Schedule (for SEC use only)
27.05 Restated Financial Data Schedule (for SEC use only)
27.06 Restated Financial Data Schedule (for SEC use only)
99.01 Risk Factors relating to the Company
99.02 Report of Coopers & Lybrand L.L.P.
99.03 Report of KPMG
- -------------------------
(1) Exhibit to the Company's Registration Statement on Form S-3,
as amended, as filed with the Securities and Exchange
Commission (File No. 333-19009) effective February 21, 1997
and incorporated herein by reference.
(2) Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 as filed with the
Securities and Exchange Commission on March 25, 1996, as
amended on May 16, 1996, and incorporated herein by reference.
(3) Exhibit to the Company's Quarterly Report on Form 10-Q, as
filed with the Securities and Exchange Commission on
August 15, 1996, and incorporated herein by reference.
(4) Exhibit to the Company's Registration Statement on Form S-1,
as amended, as filed with the Securities and Exchange
Commission (File No. 33-75766) effective April 20, 1994, and
incorporated herein by reference.
(5) Executive compensation plans and arrangements.
(6) Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, as filed with the
Securities and Exchange Commission on March 30, 1995, and
incorporated herein by reference.
(7) Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, as filed with the
Securities and Exchange Commission on March 25, 1997, and
incorporated herein by reference.
(8) Exhibit to the Company's Registration Statement on Form S-3,
as filed with the Securities and Exchange Commission
(File No. 333-38181) effective October 21, 1997, and
incorporated herein by reference.
(9) Exhibit to the Company's Registration Statement on Form S-8,
as filed with the Securities and Exchange Commission
(File No. 333-16553) effective November 21, 1996, and
incorporated herein by reference.
(10) Exhibit to the Company's Registration Statement on Form S-8,
as filed with the Securities and Exchange Commission
(File No. 333-03603) effective May 13, 1996, and incorporated
herein by reference.
21
<PAGE> 22
(11) Exhibit to the Company's Registration Statement on Form S-8 as
filed with the Securities and Exchange Commission (File No.
333-40493) effective November 18, 1997, and incorporated
herein by reference.
(12) Exhibit to the Company's Current Report on Form 8-K dated
March 6, 1995, as filed with the Securities and Exchange
Commission on March 20, 1995, and incorporated herein by
reference.
(13) Exhibit to the Company's Registration Statement on Form S-4,
as amended, as filed with the Securities and Exchange
Commission (File No. 333-12573) effective October 15, 1996,
and incorporated herein by reference.
(14) Exhibit to the Company's Current Report on Form 8-K dated
October 6, 1996, as filed with the Securities and Exchange
Commission on October 11, 1996, and incorporated herein by
reference.
(15) Exhibit to the Company's Current Report on Form 8-K dated
November 22, 1996, as filed with the Securities and Exchange
Commission on December 6, 1996 and amended on January 16,
1997, and incorporated herein by reference.
(16) Exhibit to the Company's Current Report on Form 8-K dated
March 5, 1997, as filed with the Securities and Exchange
Commission on March 5, 1997, and incorporated herein by
reference.
(17) Exhibit to the Company's Registration Statement on Form S-3,
as amended, as filed with the Securities and Exchange
Commission (File No. 333-28919), effective July 1, 1997, and
incorporated herein by reference.
(18) Exhibit to the Company's Current Report on Form 8-K dated
April 16, 1997, as filed with the Securities and Exchange
Commission on April 23, 1996, and incorporated herein by
reference.
(19) Exhibit to the Company's Current Report on Form 8-K dated
December 11, 1997, as filed with the Securities and Exchange
Commission on December 11, 1997, and incorporated herein by
reference.
(b) Reports on Form 8-K. The Company filed a Current Report on Form 8-K
dated October 17, 1997, including the following supplemental
consolidated financial statements which restated certain of its
historical financial data in connection with the consummation of
certain acquisitions accounted for as poolings of interests:
Supplemental Consolidated Statements of Income for each of the
three years in the period ended December 31, 1996
Supplemental Consolidated Balance Sheets as of December 31,
1996 and 1995
Supplemental Consolidated Statements of Shareholders' Equity
for each of the three years in the period ended
December 31, 1996
Supplemental Consolidated Statements of Cash Flows for each of
the three years in the period ended December 31, 1996
Unaudited Condensed Supplemental Consolidated Statements of
Income for the three and six months ended June 30,
1997 and 1996
22
<PAGE> 23
Unaudited Condensed Supplemental Consolidated Balance Sheets
as of June 30, 1997 and December 31, 1996
Unaudited Condensed Supplemental Consolidated Statements of
Cash Flows for the six months ended June 30, 1997 and 1996
The Company filed a Current Report on Form 8-K, dated November 26,
1997, to amend certain effective registration statements of the Company to
increase the number of shares registered thereunder to include the additional
shares resulting from the application of the Company's two-for-one stock split
to the registered shares remaining unsold under such registration statements as
of December 1, 1997.
The Company filed a Current Report on Form 8-K, dated December 11,
1997, including as an exhibit an Underwriting Agreement among the Company, the
Selling Shareholders listed in Schedule 1 attached thereto and Morgan Stanley &
Co. Incorporated (the "Underwriter") with respect to certain shares to be sold
by such Selling Shareholders to the Underwriter under two effective Registration
Statements on Form S-3 previously filed by the Company.
FORWARD-LOOKING STATEMENTS
Information set forth in this Annual Report on Form 10-K contains
various "forward looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, which statements represent the Company's judgment
concerning the future and are subject to risks and uncertainties that could
cause the Company's actual operating results and financial position to differ
materially. Such forward looking statements can be identified by the use of
forward looking terminology such as "may", "will", "expect", "anticipate",
"estimate", "believe", or "continue", or the negative thereof or other various
thereof or comparable terminology.
The Company cautions that any such forward looking statements are
further qualified by important factors that could cause the Company's actual
operating results to differ materially from those in the forward looking
statements, including without limitation, the Company's dependence on certain
industries and customers, the management of its growth, the risks associated
with acquisitions, risks relating to contract sales services, competition within
the industry, the loss or delay of large contracts, dependence on personnel and
government regulation and the other Risk Factors described in Exhibit 99.01
attached to this report.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in Durham, North Carolina,
on the 25th day of March, 1998.
QUINTILES TRANSNATIONAL CORP.
By:/s/ Dennis B. Gillings, Ph.D.
-----------------------------------
Dennis B. Gillings, Ph.D.
Chairman of the Board of Directors
and Chief Executive Officer
24
<PAGE> 25
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Dennis B. Gillings and Rachel R. Selisker
and each of them, each with full power to act without the other, his true and
lawful attorneys-in-fact and agents, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any or all amendments to this report, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully for all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or their substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Dennis B. Gillings Chairman of the Board of Directors March 25, 1998
- -------------------------- and Chief Executive Officer
Dennis B. Gillings, Ph.D.
/s/ Rachel R. Selisker Chief Financial Officer, March 25, 1998
- -------------------------- Executive Vice President Finance
Rachel R. Selisker and Director
/s/ Robert C. Bishop Director March 25, 1998
- --------------------------
Robert C. Bishop, Ph.D.
/s/ E. G. F. Brown Director March 25, 1998
- --------------------------
E. G. F. Brown
/s/ Vaughn D. Bryson Director March 25, 1998
- --------------------------
Vaughn D. Bryson
/s/ Santo J. Costa President, Chief Operating Officer March 25, 1998
- -------------------------- and Director
Santo J. Costa
/s/ Chester W. Douglass Director March 25, 1998
- --------------------------
Chester W. Douglass, Ph.D.
/s/ Lawrence S. Lewin Chief Executive Officer, The March 25, 1998
- -------------------------- Lewin Group, and Director
Lawrence S. Lewin
/s/ Arthur M. Pappas Director March 25, 1998
- --------------------------
Arthur M. Pappas
/s/ Ludo J. Reynders Chief Executive Officer, March 25, 1998
- -------------------------- Quintiles CRO, and Director
Ludo J. Reynders, Ph.D.
/s/ Eric J. Topol Director March 25, 1998
- --------------------------
Eric J. Topol, M.D.
/s/ Virginia V. Weldon Director March 25, 1998
- --------------------------
Virginia V. Weldon, M.D.
/s/ David F. White Chief Executive Officer, March 25, 1998
- -------------------------- Innovex Limited, and Director
David F. White
</TABLE>
25
<PAGE> 26
EXHIBIT INDEX
Exhibit Description
- ------- -----------
3.01(1) Amended and Restated Articles of Incorporation, as amended
3.02(2) Amended and Restated Bylaws
4.01(3) Indenture, dated as of May 17, 1996, between the Company
and Marine Midland Bank, as Trustee, with respect to the
Company's 4.25% Convertible Subordinated Notes due May
31, 2000
4.02 Amended and Restated Articles of Incorporation, as amended
(see Exhibit 3.01)
4.03 Amended and Restated Bylaws (see Exhibit 3.02)
4.04(4) Specimen certificate for Common Stock, $0.01 par value per
share
4.05(1) Form of the Company's 4.25% Convertible Subordinated Notes
in Unrestricted Global Form
4.06(1) Form of the Company's 4.25% Convertible Subordinated Notes
in Certificated Form.
4.07(3) Registration Rights Agreement dated as of May 17, 1996,
by and among the Company, Goldman Sachs International and
Smith Barney, Inc.
10.01(4)(5) Employment Agreement, dated February 22, 1994, by and between
Dr. Dennis B. Gillings and the Company
10.02(4)(5)(6) Employment Agreement, dated February 22, 1994, by and between
Santo J. Costa and the Company, as amended on November 4,
1994
10.03(5)(6) Employment Agreement, dated January 1, 1995, by and between
Rachel R. Selisker and the Company
10.04(4)(5) Employment Agreement, dated January 15, 1988, by and between
Dr. Ludo Reynders and Quintiles (UK) Limited
10.05(5)(7) Employment Agreement, dated November 29, 1996, by and between
Barrie S. Haigh and the Company
10.06(5)(7) Deed of Non-Competition, dated November 29, 1996, by and
between Barrie S. Haigh and the Company
10.07(5)(7) Letter Agreement dated August 11, 1997 between Barrie S.
Haigh and the Company
<PAGE> 27
Exhibit Description
- ------- -----------
10.08(5)(7) Employment Agreement, dated May 13, 1996, by and between
Lawrence S. Lewin and The Lewin Group, Inc. (a wholly-owned
subsidiary of the Company)
10.09(5)(7) Service Agreement, dated September 2, 1994, between Innovex
Holdings Limited and David F. White
10.10(5)(7) Deed of Non-Competition, dated November 29, 1996, between
David F. White and the Company
10.11(2)(5) Employment letter agreement, dated May 31, 1994, by and
between Gregory D. Porter and the Company
10.12(4)(5) Non-Qualified Employee Incentive Stock Option Plan
10.13(4)(5) Equity Compensation Plan
10.14(5)(6) Amended and Restated Employee Stock Ownership Plan and Trust
10.15(4)(5) Quintiles (UK) Limited Approved Profit Sharing Scheme
10.16(5) Quintiles Transnational Corp. Deferred Compensation Plan
10.17(2)(5) Quintiles Group Executive Share Option Scheme
10.18(5)(9) Quintiles Employee Stock Purchase Plan
10.19(5)(9) Innovex Limited 1996 Unapproved Executive Share Option Scheme
10.20(5)(10) Quintiles/Lewin Stock Option Plan
10.21(5)(11) Quintiles Transnational Corp. Nonqualified Stock Option Plan
10.22(4) Lease dated January 20, 1992, by and between Durham Park,
operating as a Joint Venture, Imperial Center, and
Quintiles, Inc. as amended on April 6, 1992, April 16, 1992,
May 12, 1992, May 13, 1992, March 10, 1993, and
September 1, 1993
10.23(2)(6) Lease dated September 8, 1994, by and between Petula
Associates Ltd. and Quintiles, Inc., as amended on September
30, 1994, January 10, 1995, April 12, 1995 and August 11,
1995
10.24(4) Lease Agreement, dated December 9, 1992, by and between South
Bay/Copley Joint Venture and the Company, as amended March 3,
1993
<PAGE> 28
Exhibit Description
- ------- -----------
10.25 (6) Lease, effective January 1, 1995, by and between The Norwich
Union Life Insurance Society, Earlsfort Centre and Quintiles
Ireland Limited and guaranteed by Quintiles, Inc.
10.26 (4) Leases, dated December 1, 1993, by and between The Norwich
Union Life Insurance Society, Quintiles (UK) Limited, and the
Company (as surety)
10.27(2) Lease, dated August 31, 1995, by and between California
Public Employees' Retirement System and International
Clinical Research Corp., as amended October 25, 1995
10.28(7) Lease, dated November 6, 1996, by and between Seagate
Technology, Inc. and Innovex
10.29(7) Lease, dated December 20, 1996, by and between The Norwich
Union Life Insurance Society and Quintiles (U.K.) Limited
10.30(7) Lease, dated August 14, 1996, by and between PRUBETA-3 and
Innovex, Inc.
10.31(7) Lease, dated November 30, 1995, by and between Lenexa
Industrial Park, Inc. and Innovex, Inc.
10.32(7) Sublease, dated January 18, 1996, by and between Legent
Corporation and Innovex, Inc.
10.33 Underlease, dated November 28, 1997, by and between PDFM
Limited and Quintiles (UK) Limited and guaranteed by the
Company
10.34(12) Agreement for the Provision of Research Services and Lease
of Business Assets dated as of March 3, 1995, between Syntex
Pharmaceuticals Limited, Quintiles Scotland Limited,
Quintiles (UK) Limited, and Roche Products Limited
10.35(2)(5) Consulting Agreement dated as of March 15, 1995 between the
Company and A.M. Pappas & Associates, L.L.C.
10.36(13) Merger Agreement, dated as of September 16, 1996, by and
among the Company, BRI Acquisition Corp. and BRI
International, Inc.
10.37(14) Share Exchange Agreement, dated as of October 4, 1996, among
Innovex Limited, the Company and the shareholders of Innovex
Limited
10.38(15) Registration Rights Agreement, dated as of November 29, 1996,
by and among the Company and the shareholders of Innovex
Limited
10.39(16) Supplemental Agreement to Registration Rights Agreement
filed as Exhibit 10.38 hereto
<PAGE> 29
Exhibit Description
- ------- -----------
10.40(17) Supplemental Agreement No. 2 to Registration Rights Agreement
filed as Exhibit 10.38 hereto
10.41(18) Asset Purchase Agreement, dated as of April 16, 1996, among
The Lewin Group, Inc., the Company, Lewin-VHI, Inc., Value
Health, Inc., Lawrence S. Lewin and Robert J. Rubin
10.42(7) Underwriting Agreement, dated March 6, 1997, by and
between the Company and Goldman, Sachs & Co., Morgan
Stanley & Co. Incorporated, Smith Barney Inc. and William
Blair & Company, L.L.C., as representatives of the
several underwriters named in Schedule 1 thereto
10.43(7) Underwriting Agreement (International Version), dated March
6, 1997, by and between the Company and Goldman Sachs
International, Morgan Stanley & Co. International Limited,
Smith Barney Inc. and William Blair & Company, L.L.C., as
representatives of the several underwriters named in
Schedule I thereto
10.44(19) Underwriting Agreement, dated December 4, 1997, among the
Company, the Selling Shareholders listed in Schedule I
attached thereto and Morgan Stanley & Co. Incorporated
13 Portions of the Annual Report to Shareholder for the fiscal
year ended December 31, 1997, which are incorporated herein
by reference
21 Subsidiaries of the Company
23.01 Consent of Ernst & Young LLP
23.02 Consent of Coopers & Lybrand L.L.P.
23.03 Consent of KPMG
24 Power of Attorney (included on the signature page hereof)
27.01 Restated Financial Data Schedule (for SEC use only)
27.02 Restated Financial Data Schedule (for SEC use only)
27.03 Restated Financial Data Schedule (for SEC use only)
27.04 Restated Financial Data Schedule (for SEC use only)
27.05 Restated Financial Data Schedule (for SEC use only)
27.06 Restated Financial Data Schedule (for SEC use only)
99.01 Risk Factors relating to the Company
99.02 Report of Coopers & Lybrand L.L.P.
99.03 Report of KPMG
- -------------------------
(1) Exhibit to the Company's Registration Statement on Form S-3,
as amended, as filed with the Securities and Exchange
Commission (File No. 333-19009) effective February 21, 1997,
and incorporated herein by reference.
(2) Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, as filed with the
Securities and Exchange Commission on March 25, 1996, as
amended on May 16, 1996, and incorporated herein by
reference.
<PAGE> 30
(3) Exhibit to the Company's Quarterly Report on Form 10-Q, as
filed with the Securities and Exchange Commission on
August 15, 1996, and incorporated herein by reference.
(4) Exhibit to the Company's Registration Statement on Form S-1,
as amended, as filed with the Securities and Exchange
Commission (File No. 33-75766) effective April 20, 1994, and
incorporated herein by reference.
(5) Executive compensation plans and arrangements.
(6) Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, as filed with the
Securities and Exchange Commission on March 30, 1995, and
incorporated herein by reference.
(7) Exhibit to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, as filed with the
Securities and Exchange Commission on March 25, 1997, and
incorporated herein by reference.
(8) Exhibit to the Company's Registration Statement on Form S-3,
as filed with the Securities and Exchange Commission
(File No. 333-38181) effective October 21, 1997, and
incorporated herein by reference.
(9) Exhibit to the Company's Registration Statement on Form S-8,
as filed with the Securities and Exchange Commission
(File No. 333-16553) effective November 21, 1996, and
incorporated herein by reference.
(10) Exhibit to the Company's Registration Statement on Form S-8,
as filed with the Securities and Exchange Commission
(File No. 333-03603) effective May 13, 1996, and incorporated
herein by reference.
(11) Exhibit to the Company's Registration Statement on Form S-8 as
filed with the Securities and Exchange Commission (File No.
333-40493) effective November 18, 1997, and incorporated
herein by reference.
(12) Exhibit to the Company's Current Report on Form 8-K dated
March 6, 1995, as filed with the Securities and Exchange
Commission on March 20, 1995, and incorporated herein by
reference.
(13) Exhibit to the Company's Registration Statement on Form S-4,
as amended, as filed with the Securities and Exchange
Commission (File No. 333-12573) effective October 15, 1996,
and incorporated herein by reference.
(14) Exhibit to the Company's Current Report on Form 8-K dated
October 6, 1996, as filed with the Securities and Exchange
Commission on October 11, 1996, and incorporated herein by
reference.
(15) Exhibit to the Company's Current Report on Form 8-K dated
November 22, 1996, as filed with the Securities and Exchange
Commission on December 6, 1996 and amended on January 16,
1997, and incorporated herein by reference.
(16) Exhibit to the Company's Current Report on Form 8-K dated
March 5, 1997, as filed with the Securities and Exchange
Commission on March 5, 1997, and incorporated herein by
reference.
(17) Exhibit to the Company's Registration Statement on Form S-3,
as amended, as filed with the Securities and Exchange
Commission (File No. 333-28919), effective July 1, 1997, and
incorporated herein by reference.
<PAGE> 31
(18) Exhibit to the Company's Current Report on Form 8-K dated
April 16, 1997, as filed with the Securities and Exchange
Commission on April 23, 1996, and incorporated herein by
reference.
(19) Exhibit to the Company's Current Report on Form 8-K dated
December 11, 1997, as filed with the Securities and Exchange
Commission on December 11, 1997, and incorporated herein by
reference.
<PAGE> 1
EXHIBIT 10.16
QUINTILES TRANSNATIONAL CORP.
ELECTIVE DEFERRED COMPENSATION PLAN
The purpose of the Quintiles Transnational Corp. Elective Deferred
Compensation Plan (the "Plan") is to further the success of Quintiles
Transnational Corp. (the "Company") by providing deferred compensation for a
select group of management and highly compensated employees, thereby giving such
persons an additional incentive to continue in the employ of the Company.
ARTICLE I
ADMINISTRATION
The Plan shall be administered by the Compensation Committee (the
"Committee") of the Company's Board of Directors (the "Board"). The Committee
shall report all of its actions to the Board. Except as otherwise provided
herein, the Committee shall have absolute discretionary authority to interpret
and construe the provisions of the Plan as it deems appropriate, including the
absolute discretionary authority to determine eligibility for benefits under the
Plan. The Committee shall have the duty and responsibility of maintaining
records, making the requisite calculations and disbursing the payments
hereunder. The interpretations, determinations, regulations and calculations of
the Committee shall be final and binding on all persons and parties concerned.
The Committee shall furnish individual annual statements of accrued benefits to
each participant, or current beneficiary, in such form as may be determined by
the Committee or required by law. In order to discharge its duties hereunder,
the Committee shall have the power and authority to delegate ministerial duties
and to employ such outside professionals as may be required for prudent
administration of the Plan. No member of the Board or the Committee, and no
officer or employee of the Company, shall be liable to any person for any action
or determination which he or she makes in good faith in connection with the
administration of the Plan.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
Section 2.1 Eligibility. All management or highly compensated employees
who (1) reach the level of Executive Compensation Plan Level 6 or higher, (2)
receive base compensation from the Company or one of its subsidiaries in an
amount that is at least equal to the FICA taxable wage base, as adjusted
($65,400 in 1997), per year, and (3) are selected to participate in the Plan by
the Committee, shall be eligible to participate in the Plan.
Section 2.2 Election to Participate. The individuals described in
Section 2.1 may elect to participate in the Plan by submitting a written
election to the Committee in the form attached or in such other form as may be
determined by the Committee (the "Deferral Election Form"). Except as otherwise
provided herein, elections to defer payment of compensation must be made before
the beginning of the calendar year for which the compensation is payable. In the
first year in which a participant becomes eligible to participate in the Plan,
the newly eligible participant may make an election to defer payment of
compensation for services to be performed subsequent to the election within 30
days after the date the participant becomes eligible. Elections to defer shall
be irrevocable as to the compensation for which they are made. Except as
otherwise provided herein, elections
<PAGE> 2
shall remain effective for all subsequent calendar years. For purposes of this
Plan, the term "compensation" shall mean for any calendar year (or portion of a
calendar year in the event of a newly eligible participant), the sum of the
participant's base cash salary as of the first day of such year plus any cash
bonus payable to the participant with respect to services rendered in such year
or partial year.
Section 2.3 Minimum and Maximum Deferrals. The minimum amount of
compensation that may be deferred with respect to any calendar year shall be
$5,000. The maximum amount of compensation that may be deferred with respect to
any calendar year (or portion of a calendar year in the event of a newly
eligible participant) shall be 50% of the participant's base cash salary as of
the first day of such year or partial year and 100% of any cash bonus payable to
the participant with respect to services rendered in such year or partial year.
Section 2.4 Change or Suspension of Deferrals. A participant may change
the amount of, or suspend, future deferrals with respect to compensation
otherwise payable to him or her for calendar years beginning after the date of
change or suspension by filing a written notice with the Committee. If a
participant elects to suspend deferrals, the participant may make a new election
to again become a participant in the Plan. Any new election to defer payment of
compensation must be made before the beginning of the calendar year for which
the compensation is payable.
Section 2.5 Deferred Compensation Account. For each individual electing
to participate in the Plan, the Company shall establish and maintain a Deferred
Compensation Account on the Company's books and records. The amount of each
participant's deferred compensation shall be credited to this account as of the
date such compensation otherwise would be payable. No amount shall actually be
set aside for payment under the Plan. Any participant to whom an amount is
credited under the Plan shall be deemed a general, unsecured creditor of the
Company.
ARTICLE III
DEFERRED COMPENSATION
Section 3.1 Investment Election. Each participant shall be entitled to
make an investment election by submitting a written election to the Committee in
the form attached or in such other form as may be determined by the Committee
(the "Investment Election Form"). A participant may change his or her election
by filing a new Investment Election Form with the Committee; provided, however,
that such changes, to be effective for the following calendar quarter, must be
submitted at least 30 days prior to the first day of such calendar quarter. The
investments from which participants may choose are subject to change at the
discretion of the Committee. The Committee reserves the right to shift any
amount designated for an investment eliminated by the Committee to the
investment that the Committee determines, in its discretion, most closely
resembles the eliminated investment.
Section 3.2 Rate of Return. All amounts credited under the terms of the
Plan to a Deferred Compensation Account maintained in the name of a participant
shall be deemed to have been invested pursuant to the investment election made
in the participant's Investment Election
2
<PAGE> 3
Form. Each participant's Deferred Compensation Account shall be credited or
debited no less frequently than quarterly by an amount equal to the gains or
losses that would have been generated had the account been invested pursuant to
such election until such time as the entire account has been distributed to the
participant or to the participant's beneficiary. Although the performance of the
investments selected by the participant will be used to determine the rate of
return on the participant's account, deferrals will not necessarily be invested
by the Company in the investments selected by the participant.
ARTICLE IV
DISTRIBUTION
Section 4.1 Termination of Employment. Within 60 days of the date on
which a participant's employment with the Company and all other related
employers of the Company (as determined under Section 414 of the Internal
Revenue Code, as amended (the "Code")) terminates for any reason including
death, distribution of the amount credited to the participant's account in
accordance with this Plan shall commence in accordance with either of the
alternatives set forth below as selected by the participant on his or her
Deferral Election Form at the time he or she elects to participate in the Plan.
The alternative forms of distribution shall be:
(a) lump sum; or
(b) monthly installments over a period not to exceed 15 years. The
monthly payment amount will be redetermined annually by dividing the
participant's current deferral account balance at the beginning of the year by
the number of remaining years in the payment period based on the participant's
retirement payment election. The unpaid balance of the deferred compensation
account will continue to earn a rate of return as specified in Section 3.2 of
the plan. The final installment will be the balance of the participant's
deferred compensation account including gains or losses credited to the account
during the last year of the payout period.
Once made, a participant's election with respect to the form of
distribution as described in this Section 4.1 shall be irrevocable; provided,
however (1) that upon the request of a participant or beneficiary whose account
is in the process of an installment distribution, the Committee may, in its sole
discretion and without obligation to do so, accelerate any or all payments
credited to said participant or beneficiary and (2) that if at any time the
balance of an account that is in the process of an installment distribution
falls below $25,000 the Committee may, in its sole discretion and without
obligation to do so, pay out the remaining balance in the form of a lump sum.
Section 4.2 Scheduled In-Service Distributions. Although distribution
of the amount credited to a participant's account will in all cases begin upon
the participant's termination of employment for any reason as described in
Section 4.1 above, a participant may, at the time he or she first elects to
participate in the Plan, elect to take one or more scheduled in-service
distributions of certain amounts on certain dates as indicated by the
Participant in his or her Deferral Election Form; provided, however, that the
minimum amount of any such scheduled in-service distribution shall be $5,000 and
that the participant may in no event elect a total of more than 6 such
3
<PAGE> 4
distributions. All such distributions shall be made in the form of a lump sum.
Once made, a participant's election with respect to scheduled
distributions as described in this Section 4.2 shall be irrevocable; provided,
however, (1) that the participant may revoke his or her election with respect to
any scheduled distribution by submitting a written notice to the Committee
before the earlier of (a) 30 days prior to the first day of the calendar year in
which the distribution is scheduled to take place as set forth in the
participant's Deferral Election Form or (b) 6 months prior to the date of the
scheduled distribution as set forth in the participant's Deferral Election Form
and (2) that the participant's termination of employment for any reason will be
deemed to nullify any such election.
Section 4.3 Death. If a participant should die before distribution of
the full amount of any account described in this Plan has been made to the
participant, any remaining amounts shall be distributed to the beneficiary
designated by the participant in the form attached or in such other form as may
be determined by the Committee (the "Beneficiary Designation Form"). Except as
otherwise provided herein, such amounts shall be distributed to the
participant's designated beneficiary in the form designated by the participant
in his or her Deferral Election Form. A participant may change his or her
beneficiary designation at any time by submitting a new Beneficiary Designation
Form to the Committee. If a participant has not designated a beneficiary, or if
no designated beneficiary is living on the date of distribution, then,
notwithstanding any provision herein to the contrary, such amounts shall be
distributed to such participant's estate in a lump sum distribution as soon as
administratively feasible following such participant's death.
Section 4.4 Hardship Withdrawals. In the event a participant incurs an
unforeseeable emergency, the participant may make a written request to the
Company for a hardship withdrawal from his or her account established under the
Plan. An unforeseeable emergency is a severe financial hardship to the
participant resulting from a sudden and unexpected illness or accident of the
participant or a dependent (as defined in Section 152(a) of the Code) of the
participant, loss of the participant's property due to casualty, or other
similar extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the participant. Withdrawal amounts because of an
unforeseeable emergency are only permitted to the extent reasonably needed to
satisfy the emergency need. This section shall be interpreted in a manner
consistent with Sections 1.457-2(h)(4) and 1.457-2(h)(5) of the Treasury
Regulations.
Section 4.5 Other Withdrawals. Anything herein to the contrary
notwithstanding, if, at any time, a court or the Internal Revenue Service
determines that an amount in a participant's account is includable in the gross
income of the participant and subject to tax, the Committee may, in its sole
discretion, permit a lump sum distribution of an amount equal to the amount
determined to be includable in the participant's gross income.
Section 4.6 Limit on Annual Distributions. Except as otherwise provided
by the Committee, the total distributions under the Plan in any calendar year
shall be limited to such amount as may be deductible by the Company for federal
income tax purposes under the Code.
4
<PAGE> 5
Section 4.7 Withholding; Unemployment Taxes. To the extent required by
law, the Company shall withhold from distributions those taxes required to be
withheld by the federal or any state or local government.
ARTICLE V
AMENDMENT AND TERMINATION OF PLAN
The Company reserves the right to amend or terminate the Plan at any
time. Any such termination shall be effective as of the end of the calendar year
during which notification is given to each participant. Notification will be by
first class mail, addressed to each participant at the participant's last known
address, or by such other method as may be commonly used by the Company to
communicate similar information if such notice is acknowledged by the
participant. Any amounts credited to an account of any participant shall remain
subject to the provisions of the Plan and distribution will not be accelerated
because of the termination of the Plan. No amendment or termination shall
directly or indirectly reduce the balance of any account described in this Plan
as of the effective date of such amendment or termination.
ARTICLE VI
CLAIMS PROCEDURE
Section 6.1. Claims Reviewer. For purposes of handling claims with
respect to this Plan, the "Claims Reviewer" shall be the Committee, unless
another person or organizational unit is designated by the Company as Claims
Reviewer.
Section 6.2. Claims Procedure. An initial claim for benefits under the
Plan must be made by the participant or his or her beneficiary in accordance
with the terms of the Plan through which the benefits are provided. Not later
than 90 days after receipt of such a claim, the Claims Reviewer will render a
written decision on the claim to the claimant, unless special circumstances
require the extension of such 90-day period. If such extension is necessary, the
Claims Reviewer shall provide the Participant or the Participant's beneficiary
with written notification of such extension before the expiration of the initial
90-day period. Such notice shall specify the reason or reasons for such
extension and the date by which a final decision can be expected. In no event
shall such extension exceed a period of 90 days from the end of the initial
90-day period. In the event the Claims Reviewer denies the claim of a
participant or the beneficiary in whole or in part, the Claims Reviewer's
written notification shall specify, in a manner calculated to be understood by
the claimant, the reason for the denial, a reference to the Plan or other
document or form that is the basis for the denial, a description of any
additional material or information necessary for the claimant to perfect the
claim, an explanation as to why such information or material is necessary, and
an explanation of the applicable claims procedure. Should the claim be denied in
whole or in part and should the claimant be dissatisfied with the Claims
Reviewer's disposition of the claimant's claim, the claimant may have a full and
fair review of the claim by the Company upon written request therefore submitted
by the claimant or the claimants duly authorized representative and received by
the Company within 60 days after the claimant receives written notification that
the claimant's claim has been denied. In connection with such review, the
claimant or the claimant's duly authorized
5
<PAGE> 6
representative shall be entitled to review pertinent documents and submit the
claimant's views as to the issues, in writing. The Company shall act to deny or
accept the claim within 60 days after receipt of the claimant's written request
for review unless special circumstances require the extension of such 60-day
period. If such extension is necessary, the Company shall provide the claimant
with written notification for such extension before the expiration of such
initial 60-day period. In all events, the Company shall act to deny or accept
the claim within 120 days of the receipt for the claimant's written request for
review. The action of the Company shall be in the form of a written notice to
the claimant and its contents shall include all of the requirements for action
on the original claim. In no event may a claimant commence legal action for
benefits the claimant believes are due the claimant until the claimant has
exhausted all of the remedies and procedures afforded the claimant by this
Article.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Unfunded Plan. The Company intends to establish and fund
the Quintiles Transnational Corp. Elective Deferred Compensation Trust (the
"Rabbi Trust.") The assets of the Rabbi Trust shall be subject to the claims of
the Company's creditors. To the extent any benefits provided under the Plan are
actually paid from the Rabbi Trust, the Company shall have no further obligation
with respect thereto, but to the extent not so paid, such benefits shall remain
the obligation of, and shall be paid by, the Company. Participants and their
beneficiaries, heirs, successors and assigns shall have no legal or equitable
rights, interest or claims in any specific property or assets of the Company,
nor shall they be beneficiaries of, or have any rights, claims or interests in
any life insurance policies, annuity contract, or the proceeds therefrom owned
or which may be acquired by the Company (the "Policies"). Apart from the Rabbi
Trust, such Policies or other assets of the Company shall not be held under any
trust for the benefits of participants, their beneficiaries, heirs, successors
or assigns, or held in any way as collateral security for the fulfilling of the
obligations of the Company under this Plan. Any and all of the Company's assets
and Policies shall be, and remain, the general, unpledged, unrestricted assets
of the Company and available to its general creditors in the event of bankruptcy
or insolvency.. The Company's obligation under the plan shall be merely that of
an unfunded and unsecured promise of the Company to pay money in the future and
the Plan shall at all times be considered entirely unfunded both for tax
purposes and for purposes of Title I for the Employee Retirement Income Security
Act of 1974, as amended.
Section 7.2 Expenses. Expenses of administration shall be paid by the
Company. The Committee shall be entitled to rely on all tables, valuations,
certificates, opinions, data and reports furnished by any actuary, accountant,
controller, counsel or other person employed or retained by the Company with
respect to the Plan.
Section 7.3 Rights Under Plan. The sole rights of a participant or
beneficiary under this Plan shall be to have this Plan administered in
accordance with its terms, to receive whatever benefits he or she may be
entitled to hereunder, and nothing in the plan shall be interpreted as a
guaranty that any funds in any trust which may be established in connection with
the Plan or assets of the Company will be sufficient to pay any benefit
hereunder. Further, the adoption and
6
<PAGE> 7
maintenance of this Plan shall not be construed as creating any contract of
employment between the Company and any participant. The Plan shall not affect
the right of the Company to deal with any participants in employment respects,
including their hiring, discharge, compensation, and conditions of employment.
Section 7.4 Distributions to Incompetent Persons. The Committee may
from time to time establish rules and procedures which it determines to be
necessary for the proper administration of the Plan and the benefits payable to
an individual in the event that individual is declared incompetent and a
conservator or other person legally charged with that individual's care is
appointed. Except as otherwise provided herein, when the Committee determines
that such individual is unable to manage his or her financial affairs, the
Committee may pay such individual's benefits to such conservator, person legally
charged with such individual's care, or institution then contributing toward or
providing for the care and maintenance of such individual. Any such payment
shall constitute a complete discharge of any liability of the Company and the
Plan for such individual.
Section 7.5 Change in Control. The Plan may continue after a sale of
assets of the Company, or a merger or consolidation of the Company with or into
another corporation or entity only if and to the extent that the transferee,
purchaser or successor entity agrees to continue the Plan. In the event that the
Plan is not continued by the transferee, purchaser or successor entity, then the
Plan shall be terminated subject to the provisions of Article IV.
Section 7.6 Nonassignability. Neither a participant, nor his or her
designated beneficiary, nor any other beneficiary under this Plan shall have any
power or right to transfer, assign, anticipate, hypothecate or otherwise
encumber all or any part of the amounts payable hereunder. No such amounts shall
be subject to seizure by any creditor of such beneficiary, by a proceeding at
law or in equity, nor shall such amounts be transferable by operation of law in
the event of bankruptcy, insolvency or death of the participant, his or her
designated beneficiary, or any other beneficiary hereunder. Any such attempted
assignment or transfer shall be void.
Section 7.7 Notice. Any notice or filing required or permitted to be
given to the Committee or the Company under the Plan shall be sufficient if in
writing and hand delivered, or sent by registered or certified mail, to the
principal office of the Company directed to the attention of the Secretary of
the Company. Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the receipt
for registration or certification.
Section 7.8 Current Address. Each participant shall keep the Company
informed of his or her current address and the current address of his or her
designated beneficiary. The Company shall not be obligated to search for any
person. If such person is not located within 3 years after the date on which
payment of the participant's benefits payable under this Plan may first be made,
payment may be made as though the participant or his or her beneficiary had died
at the end of such 3-year period.
Section 7.9 Governing Law. All questions pertaining to the
construction, validity and
7
<PAGE> 8
effect of the Plan shall be determined in accordance with the laws of the United
States and to the extent not preempted by such laws, by the laws of the State of
North Carolina.
8
<PAGE> 9
QUINTILES TRANSNATIONAL CORP.
ELECTIVE DEFERRED COMPENSATION PLAN
DEFERRAL ELECTION FORM
I. I hereby elect to have the following amount deducted from my compensation:
________ % (no more than 50%) of my annual base cash salary without cash
bonuses; and
________% (up to 100%) of my cash bonuses, if any.
NOTE: ELECTIONS SHALL REMAIN EFFECTIVE UNTIL CHANGED OR SUSPENDED. A PARTICIPANT
MAY CHANGE THE AMOUNT OF, OR SUSPEND, FUTURE DEFERRALS WITH RESPECT TO
COMPENSATION OTHERWISE PAYABLE TO HIM OR HER FOR CALENDAR YEARS BEGINNING
AFTER THE DATE OF CHANGE OR SUSPENSION BY FILING A WRITTEN NOTICE WITH THE
COMMITTEE. IF A PARTICIPANT ELECTS TO SUSPEND DEFERRALS, THE PARTICIPANT
MAY MAKE A NEW ELECTION TO AGAIN BECOME A PARTICIPANT IN THE PLAN. ANY NEW
ELECTION TO DEFER PAYMENT OF COMPENSATION MUST BE MADE BEFORE THE
BEGINNING OF THE CALENDAR YEAR FOR WHICH THE COMPENSATION IS PAYABLE.
II. I hereby elect the following form of distribution for the amounts credited
to my account and any earnings thereon:
o Lump Sum Distribution
o Monthly Installments over ________ (no more than 15) years
NOTE: ONCE MADE, A PARTICIPANT'S ELECTION WITH RESPECT TO THE FORM OF
DISTRIBUTION SHALL BE IRREVOCABLE; PROVIDED, HOWEVER (1) THAT UPON THE
REQUEST OF A PARTICIPANT OR BENEFICIARY WHOSE ACCOUNT IS IN THE PROCESS OF
AN INSTALLMENT DISTRIBUTION, THE COMMITTEE MAY, IN ITS SOLE DISCRETION AND
WITHOUT OBLIGATION TO DO SO, ACCELERATE ANY OR ALL PAYMENTS CREDITED TO
SAID PARTICIPANT OR BENEFICIARY AND (2) THAT IF AT ANY TIME THE BALANCE OF
AN ACCOUNT THAT IS IN THE PROCESS OF AN INSTALLMENT DISTRIBUTION FALLS
BELOW $25,000 THE COMMITTEE MAY, IN ITS SOLE DISCRETION AND WITHOUT
OBLIGATION TO DO SO, PAY OUT THE REMAINING BALANCE IN A LUMP SUM. IN
ADDITION, HARDSHIP WITHDRAWALS ARE AVAILABLE FOR UNFORSEEABLE EMERGENCIES
AS DESCRIBED IN THE PLAN.
9
<PAGE> 10
III. I hereby elect to receive scheduled in-service distributions of the
amounts credited to my account and any earnings thereon as follows:
Amount of Distribution Date of Distribution
---------------------- --------------------
$________ ________
$________ ________
$________ ________
$________ ________
$________ ________
$________ ________
NOTE: THE MINIMUM AMOUNT OF ANY SUCH SCHEDULED IN-SERVICE DISTRIBUTION SHALL BE
$5,000. A PARTICIPANT MAY NOT ELECT A TOTAL OF MORE THAN 6 SUCH
DISTRIBUTIONS. ALL SUCH DISTRIBUTIONS SHALL BE MADE IN THE FORM OF A LUMP
SUM. ONCE MADE, A PARTICIPANT'S ELECTION WITH RESPECT TO SCHEDULED
IN-SERVICE DISTRIBUTIONS SHALL BE IRREVOCABLE; PROVIDED, HOWEVER, (1) THAT
THE PARTICIPANT MAY REVOKE HIS OR HER ELECTION WITH RESPECT TO ANY
SCHEDULED IN-SERVICE DISTRIBUTION BY SUBMITTING A WRITTEN NOTICE TO THE
COMMITTEE BEFORE THE EARLIER OF (A) 30 DAYS PRIOR TO THE FIRST DAY OF THE
CALENDAR YEAR IN WHICH THE DISTRIBUTION IS SCHEDULED TO TAKE PLACE AS SET
FORTH IN THE PARTICIPANT'S DEFERRAL ELECTION FORM OR (B) 6 MONTHS PRIOR TO
THE DATE OF THE SCHEDULED IN-SERVICE DISTRIBUTION AS SET FORTH IN THE
PARTICIPANT'S DEFERRAL ELECTION FORM AND (2) THAT THE PARTICIPANT'S
TERMINATION OF EMPLOYMENT FOR ANY REASON WILL BE DEEMED TO NULLIFY ANY
SUCH ELECTION.
This Deferral Election Form is signed as of this _________ day of ________,
_____.
-------------------------------
Employee Signature
-------------------------------
Employee Name (Please Print)
-------------------------------
Employee Social Security Number
Received on:_____________________
By:______________________________
10
<PAGE> 11
QUINTILES TRANSNATIONAL CORP.
ELECTIVE DEFERRED COMPENSATION PLAN
INVESTMENT ELECTION FORM
I hereby elect to have all amounts credited to my Deferred Compensation
Account credited or debited no less frequently than quarterly by an amount equal
to the gains or losses that would have been generated if the account had been
invested in one or more of the following funds:
Fund Manager Fund Allocation Percentage
------------ ---- ---------------------
1. PACIFIC MUTUAL LIFE MONEY MARKET ________%
2. PIMCO MANAGED BOND ________%
3. BANKERS TRUST EQUITY INDEX ________%
4. J.P. MORGAN INVESTMENT EQUITY INCOME ________%
5. CAPITAL GUARDIAN GROWTH ________%
NOTE: ALLOCATIONS MUST BE MADE IN INCREMENTS OF 10%. NO MORE THAN 5 FUNDS MAY BE
ELECTED. CHANGES IN SUCH ALLOCATIONS, TO BE EFFECTIVE FOR THE FOLLOWING
CALENDAR QUARTER, MUST BE SUBMITTED AT LEAST 30 DAYS PRIOR TO THE FIRST
DAY OF SUCH CALENDAR QUARTER. THE LIST OF FUNDS IS SUBJECT TO CHANGE AT
THE DISCRETION OF THE COMMITTEE. THE COMMITTEE RESERVES THE RIGHT TO SHIFT
ANY ALLOCATION PERCENTAGE DESIGNATED FOR A FUND ELIMINATED FROM THE LIST
TO THE FUND THAT IT DETERMINES, IN ITS DISCRETION, MOST CLOSELY RESEMBLES
THE ELIMINATED FUND.
This Investment Election Form is signed as of this _________ day of ________,
_____.
-------------------------------
Employee Signature
-------------------------------
Employee Name (Please Print)
-------------------------------
Employee Social Security Number
Received on:_____________________
By:______________________________
11
<PAGE> 12
QUINTILES TRANSNATIONAL CORP.
ELECTIVE DEFERRED COMPENSATION PLAN
BENEFICIARY DESIGNATION FORM
If I die before distribution of the full amount of my account has been
made to me, any remaining amounts shall be distributed in the form designated by
me in my Deferral Election Form to the following persons in the following
amounts:
Primary Beneficiary(ies):
Name % Address
---- - -------
------------------------- ---- ------------------------------------
------------------------- ---- ------------------------------------
------------------------- ---- ------------------------------------
Contingent Beneficiary(ies):
Name % Address
---- - -------
------------------------- ---- ------------------------------------
------------------------- ---- ------------------------------------
------------------------- ---- ------------------------------------
NOTE: BENEFICIARIES WILL BE PRESUMED TO SHARE EQUALLY UNLESS PERCENTAGES ARE
INDICATED. A PARTICIPANT MAY CHANGE HIS OR HER BENEFICIARY DESIGNATION AT
ANY TIME BY SUBMITTING A NEW BENEFICIARY DESIGNATION FORM TO THE
COMMITTEE.
I hereby revoke any previous beneficiary designations I may have made.
This Beneficiary Designation Form is signed as of this _________ day of
________, _____.
-------------------------------
Employee Signature
-------------------------------
Employee Name (Please Print)
-------------------------------
Employee Social Security Number
Received on:_____________________
By:______________________________
12
<PAGE> 1
EXHIBIT 10.33
DATED 28 NOVEMBER 1997
PDFM LIMITED
- and -
QUINTILES (UK) LIMITED
- and -
QUINTILES TRANSNATIONAL CORP.
UNDERLEASE
of
LAND AND PREMISES AT STATION HOUSE, MARKET STREET, BRACKNELL
Term: 15 years
Commencing: 14 November 1997
Rent: (pound)1,076,000 per annum
<PAGE> 2
DATED 28 November
PARTIES
1 Landlord PDFM LIMITED whose registered office is at Triton
Court, 14 Finsbury Square, London EC2A 1PD (Company
registration number 1546400) acting in the capacity
of general partner of PDFM Second Property
Partnership (a limited partnership registered under
the Limited Partnerships Act 1907 of the same
address) ("the Landlord") and
2 Tenant QUINTILES (UK) LIMITED (Company registration number
2120025) whose registered office is at 29 Bedford
Street London WC2E 9ED ("the Tenant") and
3 Guarantor QUINTILES TRANSNATIONAL CORP. a company incorporated
in North Carolina, U.S.A, whose principal corporate
office is at Post Office Box 13979 Research Triangle
Park North Carolina 27709-3979 U.S.A ("the
Guarantor")
OPERATIVE PROVISIONS
1 DEFINITIONS AND INTERPRETATION
1.1 Unless the contrary intention appears, the following definitions apply:
Access Road the roadway shown for identification purposes only
hatched brown on Plan 1050;
Canopy the canopy currently affixed to the east south and
west elevations of Station House at first floor
level;
Car Park the car park shown for identification purposes only
edged yellow on Plan 1050;
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<PAGE> 3
Conducting Media any of the drains, sewers, conduits, flues, gutters,
gullies, channels, ducts, shafts, watercourses,
pipes, cables, wires and mains serving the Premises;
Encumbrances the restrictions, stipulations, covenants, rights,
reservations, provisions and other matters contained,
imposed by or referred to in the documents, brief
particulars of which are set out in schedule 1 part
4;
Insured Risks has the meaning given to it in schedule 3;
Interest interest at the rate of 3% over the base rate of
Barclays Bank PLC from time to time (as well before
as after judgment), or such other comparable rate as
the Landlord may reasonably and properly designate if
the base rate ceases to be published, compounded at
quarterly rests on 31 March, 30 June, 30 September
and 31 December in each year;
Landlord includes all persons from time to time entitled to
the immediate reversion to this Lease;
Landscaped Area that part of the Premises shown for the purposes of
identification only hatched green on Plans 5297/400
and 1050;
Lease is a reference to this underlease and includes any
documents supplemental to this Lease;
Measuring Code the latest edition of the Code of Measuring Practice
published from time to time by the Royal Institution
of Chartered Surveyors and the Incorporated Society
of Valuers and Auctioneers;
2
<PAGE> 4
New Canopy the canopy currently affixed above the entrance of
the north side of Station House at first floor level
suspended from the under surface of the second floor
slab and from the front elevation as shown for
identification purposes only cross hatched blue on
Plan 5297/401;
Outgoings (in relation to the Premises) all non-domestic rates,
(including rates for unoccupied property), water
rates, water charges and all existing and future
rates, taxes, charges, assessments, impositions and
outgoings whatsoever (whether parliamentary or local)
which are now or may at any time be payable, charged
or assessed on property, or the owner or occupier of
property, but "taxes" in this context does not
include value added tax, nor any taxes imposed on the
Landlord in respect of the yearly rent reserved by
this Lease, or in respect of a disposal of the
interest in immediate reversion to this Lease;
Permitted Part the first floor and the second floor of the Premises
together or one other entire individual floor of the
Premises;
Planning Acts "the consolidating Acts" as defined in the
Planning (Consequential Provisions) Act 1990 and any
other legislation relating to town and country
planning in force from time to time;
Premises the property described in schedule 1 part 1 and each
part of the Premises and includes plant and
equipment, improvements and additions made to, and
fixtures, fittings and appurtenances in, the
Premises;
3
<PAGE> 5
Station
Forecourt the station forecourt shown for identification
purposes only cross hatched brown on Plan 1050
together with the airspace above the surface of the
forecourt up to the undersurface of the second floor
slab of Station House (but excluding the airspace
occupied by the stanchions and columns supporting
Station House);
Station House the office building comprising part ground and a
further seven floors forming part of the Premises
known as Station House Market Street Bracknell shown
for identification purposes only edged red on each of
the Plans attached to this Lease and includes any
additions or improvements made to it;
Superior
Landlord's
Premises all those premises constructed as part of the
buildings of which Station House forms part up to the
undersurface of the first floor slab of the Premises
as shown for identification purposes only edged in
blue on Plan 1050 and Plan 5297/400;
Superior Lease the lease under which the Landlord holds its interest
in the Premises and also any leasehold reversion
(whether immediate or not) to such lease;
Superior
Landlord the holder of a reversion whether immediate or not to
the lease under which the Landlord holds its interest
in the Premises;
4
<PAGE> 6
Tenant includes the Tenant's successors in title and assigns
in whom this Lease may for the time being be vested;
Term the term of years granted by this Lease;
Unsecured
Underletting an underletting of the whole or a Permitted Part of
the Premises in relation to which the underlessor and
the underlessee have agreed to exclude the provisions
of sections 24 to 28 of the Landlord and Tenant Act
1954 and their agreement to do so has been duly
authorised beforehand by the court; and
Up Platform the platform of Bracknell Station from which trains
leave from Bracknell Station for Waterloo Station.
1.2 Any obligation on a party to this Lease to do any act includes an
obligation to procure that it is done.
1.3 Where the Tenant is placed under a restriction in this Lease, the
restriction includes the obligation on the Tenant not to permit or
allow the infringement of the restriction by any person.
1.4 References to liability include, where the context allows, claims,
demands, proceedings, damages, losses, costs and expenses.
1.5 The clause and paragraph headings in this Lease are for ease of
reference only and are not to be taken into account in the construction
or interpretation of any provision to which they refer.
1.6 Unless the contrary intention appears, references:
1.6.1 to numbered clauses and schedules are references to the relevant clause
in, or schedule to, this Lease; and
5
<PAGE> 7
1.6.2 to a numbered paragraph in any schedule are references to the relevant
paragraph in that schedule.
1.7 Words in this Lease denoting the singular include the plural meaning
and vice versa.
1.8 References in this Lease to any statutes or statutory instruments
include any statute or statutory instrument amending, consolidating or
replacing them respectively from time to time in force, and references
to a statute include statutory instruments and regulations made
pursuant to it.
1.9 Words in this Lease importing one gender include both other genders,
and may be used interchangeably, and words denoting natural persons,
where the context allows, include corporations and vice versa.
1.10 For the purposes of this Lease, two companies are members of the same
group if one is the subsidiary of the other, or both are subsidiaries
of a third company, "subsidiary" having the meaning given to it in
section 736 of the Companies Act 1985.
1.11 At any time that the parties of the second or third parts to this Lease
are two or more persons, the expression "the Tenant" or "the Guarantor"
includes the plural number, and obligations in this Lease expressed or
implied to be made with or by the Tenant or the Guarantor are to be
treated as made with or by such individuals jointly and severally.
2 THE LETTING TERMS
In consideration of the rent reserved by, and the covenants in, this
Lease:
2.1 the Landlord at the request of the Guarantor lets to the Tenant:
2.1.1 all the Premises;
2.1.2 together with the rights set out in schedule 1 part 2; and
2.1.3 except and reserved to the Landlord the rights set out in schedule 1
part 3;
6
<PAGE> 8
2.2 for the term of 15 years commencing on 14 November 1997 subject to the
Encumbrances;
2.3 the Tenant paying during the Term:
2.3.1 the yearly rent of (pound)1,076,000 (subject to revision under schedule
2) by equal quarterly payments in advance on the usual quarter days in
every year, the first (or a proportionate part) of such payments in
respect of the period commencing on 24 June 1998 and ending on the
following quarter day to be made on 24 June 1998;
2.3.2 as additional rent:
2.3.2.1 the monies payable by the Tenant under schedule 3 commencing
on 14 November 1997;
2.3.2.2 Interest payable by the Tenant under the terms of this Lease;
and
2.3.2.3 such value added tax as may be chargeable on the rent and the
other additional rents reserved by this Lease.
3 TENANT'S COVENANTS
The Tenant covenants with the Landlord during the Term and any
statutory extension of the tenancy created by this Lease as follows.
3.1 RENT
3.1.1 To pay the yearly rent reserved by this Lease, free from any deductions
and rights of set-off, at the times and in the manner required in
clause 2.3.1 and by means of a standing order to the Landlord's bank
account.
3.1.2 To pay the additional rents reserved by this Lease at the times and in
the manner specified.
3.2 INTEREST
3.2.1 To pay Interest on so much of the rents, reviewed rents, and other
monies payable under this Lease as remain unpaid seven days after they
have become due from the date that they became due until the payment is
made to the Landlord.
7
<PAGE> 9
3.2.2 To pay Interest under clause 3.2.1 for any period during which the
Landlord properly refuses to accept the tender of payment because of an
unremedied breach of covenant of the Tenant.
3.3 OUTGOINGS AND CONTRIBUTIONS
3.3.1 To pay Outgoings.
3.3.2 To reimburse the Landlord for loss of relief from non-domestic rates
for unoccupied property which would have been available to the Landlord
in respect of vacancy of the Premises after the termination of this
Lease but for the allowance of relief to the Tenant during the Term.
3.3.3 To pay for all gas, water, telecommunications and electricity consumed
on the Premises, all charges for meters, and all standing charges.
3.3.4 To pay to the Landlord on demand a fair and proper proportion (to be
determined by the Landlord or the Landlord's surveyor) of the
reasonable expense properly incurred in cleaning, lighting, repairing,
renewing, decorating, maintaining and rebuilding whenever necessary:
3.3.4.1 any party walls, lifts, fences, gutters, drains, roadways,
pavements, entrance ways, stairs and passages, access ways and
service areas which are or may be used or enjoyed by an
occupier of the Premises in common with any other person or
persons; and
3.3.4.2 the Station Forecourt; and
3.3.4.3 the Access Road; and
3.3.4.4 the automatic barrier to the entrance and exit of the Car Park
and the lighting equipment situated on it used for the parking
of vehicles.
3.4 REPAIR
3.4.1 Well and substantially to repair, maintain and clean the Premises and
to keep the Premises in good and substantial repair, maintained and in
clean condition (except in respect of damage by Insured Risks as
allowed in schedule 3).
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<PAGE> 10
3.4.2 The Tenant's liability under clause 3.4.1 excludes the underside of the
Canopy.
3.5 DECORATIONS
3.5.1 To decorate the inside of the Premises in the year 2002 and from then
in every subsequent fifth year of the Term and in the last three months
of the Term (however it may terminate) with two coats of good quality
paint or good quality polish, and with paper for those parts normally
papered, or other suitable and appropriate materials of good quality,
in a workmanlike manner (the decorations in the last three months of
the Term to be executed in such colours, patterns and materials as the
Landlord may reasonably and properly require), provided that the Tenant
shall not be required to decorate more than once in any twelve month
period.
3.5.2 To decorate the exterior of the Premises in the year 2002 and from then
in every subsequent fifth year of the Term and also in the last three
months of the Term (however it may terminate) with two coats of good
quality paint or polish, or other suitable material of good quality, in
a proper and workmanlike manner, provided that the Tenant shall not be
required to decorate more than once in any twelve month period.
3.5.3 Not without the consent of the Landlord not to be unreasonably withheld
or delayed to alter, cover up or change any part of the architectural
decorations or the external colour of the Premises, provided that the
Landlord is deemed to be acting reasonably if consent is refused or
withheld by the Superior Landlord.
3.6 LANDLORD'S RIGHT OF INSPECTION AND RIGHT OF REPAIR
3.6.1 To permit the Landlord and its employees or agents at all reasonable
and proper times and upon reasonable notice to enter the Premises and
examine their condition and also to take a schedule of fixtures and
fittings in the Premises.
3.6.2 If any breach of covenant, defect, disrepair, removal of fixtures and
fittings or unauthorised alterations or additions are found on
inspection for which the Tenant is liable, then, on notice from the
Landlord, to execute to the reasonable and proper satisfaction of the
Landlord or its surveyor all repair works, replacements or
9
<PAGE> 11
removals required within two months or such longer period as the
Landlord may reasonably deem necessary (or sooner if necessary) after
receipt of notice.
3.6.3 If the Tenant fails to comply with a notice under clause 3.6.2, the
Landlord may itself or by its workpeople or agents enter the Premises
and execute the repairs, works, replacements or removals such entry to
be at reasonable times and upon reasonable notice.
3.6.4 To pay to the Landlord on demand all reasonable expenses properly
incurred under clause 3.6.3 (the expenses and any Interest on them to
be recoverable as rent in arrear).
3.7 YIELD UP IN REPAIR AT THE END OF THE TERM
At the termination of this Lease or at such later time as the Landlord
recovers possession of the Premises from the Tenant:
3.7.1 quietly to yield up the Premises (with all additions and improvements
to the Premises and all fixtures in the Premises, other than tenant's
fixtures and fittings which the Tenant may be entitled to remove)
repaired, maintained, cleaned, decorated and kept in accordance with
the Tenant's covenants in this Lease (except in respect of damage by
Insured Risks as allowed in schedule 3);
3.7.2 if so requested by the Landlord, to remove from the Premises all the
Tenant's belongings, that is to say trade fixtures and fittings and all
notices, notice boards and signs bearing the name of, or otherwise
relating to, the Tenant (including in this context any persons deriving
title to the Premises under the Tenant) or its business; and
3.7.3 to make good to the reasonable satisfaction of the Landlord all damage
to the Premises resulting from the removal of the Tenant's belongings
from the Premises.
3.8 LANDLORD'S RIGHT OF ENTRY FOR REPAIRS, ETC
3.8.1 To permit when necessary the Landlord, the Superior Landlord or other
owners, tenants or occupiers of any adjoining or neighbouring property
and their respective agents, workmen and employees to enter the
Premises at reasonable and proper
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<PAGE> 12
times, after giving to the Tenant at least 48 hours written notice
(except in an emergency):
3.8.1.1 to alter, maintain or repair the adjoining premises or
property of the Landlord or person so entering; or
3.8.1.2 to construct, alter, maintain, repair or fix anything serving
such property and running through or on the Premises; or
3.8.1.3 to comply with an obligation in the Superior Lease or with an
obligation to any third party having legal rights over the
Premises; or
3.8.1.4 in exercise of a right or to comply with an obligation of
repair, maintenance or renewal under this Lease; or
3.8.1.5 in connection with the development of any adjoining or
neighbouring land or premises, including the right to build on
or into, or extend, any boundary wall of the Premises.
3.8.2 On becoming aware of any defect in the Premises, which are "relevant
defects" for the purposes of section 4 of the Defective Premises Act
1972, to give notice of them to the Landlord.
3.9 ALTERATIONS
3.9.1 Not to make any alterations or additions to, or affecting the structure
or exterior of, the Premises, or the appearance of the Premises as seen
from the exterior provided that on the basis that the Tenant does not
invalidate any roof or other guarantee in existence from time to time
and provides the Landlord with details of the works before they are
commenced and promptly supplies copies of the "as built" plans once the
works are completed the Tenant shall be entitled without consent to
erect any telecommunications or security equipment on the roof or the
exterior of the Premises.
3.9.2 Not without the consent of the Landlord such consent not to be
unreasonably withheld or delayed to make any other alterations or
additions to the Premises (but the erection, alteration or removal by
the Tenant of internal demountable partitioning, and consequential
adjustments of ducting, ceiling tiles, light fittings
11
<PAGE> 13
and wiring, is authorised without such consent if the plans of the
partitions (or details of the alteration or removal of partitioning)
are immediately deposited with the Landlord within a reasonable period
of completion of the works).
3.9.3 Not to install or erect any exterior lighting, shade, canopy or awning
or other structure in front of, or elsewhere outside, the Premises
3.9.4 On the termination of this Lease, to the extent required by the
Landlord, to reinstate the Premises to the condition in which they were
at the grant of this Lease, such reinstatement to be carried out to the
reasonable and proper satisfaction of the Landlord or the Landlord's
surveyor.
3.9.5 To procure that any external or structural alterations or additions to
the Premises permitted by the Landlord under clause 3.9.1 or any major
internal alterations permitted by the Landlord under clause 3.9.2 be
carried out only by a reputable contractor approved by the Landlord
(such approval not to be unreasonably withheld).
3.9.6 To comply with the provisions of Schedule 6 of the Superior Lease.
3.10 ALIENATION
3.10.1 Not to assign or charge or underlet part only of the Premises, other
than a Permitted Part where clause 3.10.3 shall apply.
3.10.2 Not to assign or charge this Lease without the consent of the Landlord
but, subject to the operation of the following provisions of this
clause 3.10.2, such consent is not to be unreasonably withheld or
delayed.
3.10.2.1 The Landlord may, in addition to reasonable and proper
grounds, withhold its consent to an application by the Tenant
for licence to assign this Lease unless (for the purposes of
section 19(1A) of the Landlord and Tenant Act 1927) the
conditions in this clause 3.10.2.1 are met; that:
(a) at the time of the assignment, there are no arrears
of rent or other monies due to the Landlord;
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(b) at the time of assignment, the Tenant and any
Guarantor of the Tenant each enter into an authorised
guarantee agreement, the operative provisions of
which are in the form required in schedule 4 part 2;
and/or
(c) on an assignment by the Tenant to a company which is
another member of the same group of companies, the
ultimate holding company (unless it is the assignee,
or it would itself be giving an authorised guarantee
agreement), enters into a guarantee (the operative
provisions of which are in the form required in
schedule 4 part 1) but if the ultimate holding
company would otherwise be released from liability,
the Landlord may require another substantial member
of the group to give the guarantee.
3.10.2.2 On an assignment by the Tenant, the Landlord may require, if
it is reasonable and proper to do so, a guarantee of the
tenant covenants of the assignee from a guarantor who is
reasonably and properly acceptable to the Landlord (the
operative provisions of which are in the form required in
schedule 4 part 1).
3.10.3 Not to underlet the whole or a Permitted Part of the Premises without
the consent of the Landlord (such consent not to be unreasonably
withheld or delayed).
3.10.4 On the grant of an underlease, to obtain covenants by deed from the
underlessee direct with the Landlord in such form as the Landlord may
reasonably require that the underlessee will:
3.10.4.1 not assign, subunderlet or charge part only of the premises
underlet;
3.10.4.2 not part with or share possession or occupation of the whole
or any part of the premises underlet, nor grant rights to
third parties over them except by a permitted assignment or
subunderletting;
3.10.4.3 not assign, or charge or subunderlet the whole of the premises
subunderlet without obtaining the previous consent of the
Landlord
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under this Lease such consent not to be unreasonably withheld
or delayed;
3.10.4.4 provide for the inclusion in any subunderleases granted out of
the underlease (whether immediate or mediate) of covenants to
the same effect as those contained in this clause 3.10.4 and
clause 3.10.5.
3.10.5 On the grant of any underlease:
3.10.5.1 to include provisions for the revision of the rent reserved by
the underlease in an upward-only direction to correspond in
time and effect with the provisions for the revision of rent
in this Lease;
3.10.5.2 not to reserve or take a premium or fine;
3.10.5.3 to reserve a rent which is the market rent at the time of the
grant of the underlease (assessed in accordance with the
principles in schedule 2) or (where only part of the Premises
is underlet) the proportionate part of the market rent of the
Premises (such proportion to be approved by the Landlord);
3.10.5.4 to include provisions in the underlease to the same effect as
those in clause 3.10.2; and
3.10.5.5 to include such underlessee covenants as are not inconsistent
with, or impair the due performance and observance of, the
covenants of the Tenant in this Lease.
3.10.6 Not to underlet a Permitted Part of the Premises except by way of
Unsecured Underletting.
3.10.7 Not (except by assignment or underletting permitted under this clause
3.10) to:
3.10.7.1 part with or share possession or occupation of the whole or
any part of the Premises; or
3.10.7.2 grant any rights over the Premises to third parties.
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3.10.8 The preceding provisions of this clause 3.10 do not apply to any
parting with possession or occupation or the sharing of occupation or
sub-division of the Premises to or with any member of a group of
companies of which the Tenant is itself a member if:
3.10.8.1 the interest in the Premises so created is and remains no more
than a tenancy at will; and
3.10.8.2 the possession, occupation or subdivision are immediately
terminated if the Tenant and the relevant member cease for any
reason to be members of the same group of companies.
3.11 REGISTRATION OF DISPOSITIONS OF THIS LEASE
Within one month after a disposition of this Lease (a disposition being
an assignment, charge, transfer, underlease, assignment or surrender of
any underlease, or, on any transmission by death or otherwise,
documentary evidence of devolution affecting the Premises):
3.11.1 to produce the document effecting the disposition (and in each case a
certified copy for retention by the Landlord) to the Landlord's
solicitors; and
3.11.2 to pay to the solicitors a reasonable fee they reasonably and properly
require for the registration and also any registration fees properly
payable to the Superior Landlord.
3.12 ENFORCEMENT OF UNDERLEASES
3.12.1 Not without the consent of the Landlord such consent not to be
unreasonably withheld or delayed to vary the terms, or waive the
benefit, of any underlessee covenants or conditions in an underlease of
the Premises.
3.12.2 Not without the consent of the Landlord such consent not to be
unreasonably withheld or delayed to accept a surrender of any
underlease of the Premises.
3.12.3 Diligently to enforce the underlessee covenants and conditions in any
underlease of the Premises and (if reasonably and properly required by
the Landlord) to exercise by way of enforcement the powers of re-entry
in the underlease.
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3.12.4 Not without the consent of the Landlord to accept any sum or payment in
kind by way of commutation of the rent payable by an underlessee of the
Premises.
3.12.5 Not to accept the payment of rent from an underlessee of the Premises
otherwise than by regular quarterly (or more frequent) payments in
advance.
3.12.6 Duly and punctually to exercise all rights to revise the rent reserved
by an underlease of the Premises, and not to agree a revised rent with
an underlessee without the approval of the Landlord (such approval not
to be unreasonably withheld or delayed).
3.13 USER
3.13.1 Not to use the Premises otherwise than as offices and for purposes
ancillary to that use.
3.13.2 Nothing in this Lease implies or is to be treated as a warranty to the
effect that the use of the Premises for those purposes is in compliance
with the Planning Acts and all other statutes and regulations relating
to town and country planning from time to time in force.
3.14 RESTRICTIONS AFFECTING USE OF THE PREMISES
3.14.1 Not to erect nor install in the Premises any engine, furnace, plant or
machinery which causes noise, fumes or vibration which can be heard,
smelled or felt outside the Premises.
3.14.2 Not to store any petrol or other specially inflammable, explosive or
combustible substance in the Premises.
3.14.3 Not to use the Premises for any noxious, noisy or offensive trade or
business nor for any illegal or immoral act or purpose.
3.14.4 Not to hold any sales by auction on the Premises.
3.14.5 Not to hold in or on the Premises any exhibition, public meeting or
public entertainment.
3.14.6 Not to permit livestock of any kind to be kept on the Premises.
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3.14.7 Not to do anything in the Premises which may be or grow to be a
nuisance, annoyance, disturbance, inconvenience or damage to the
Landlord or to the owners, tenants and occupiers of adjoining and
neighbouring properties.
3.14.8 Not to load or use the floors, walls, ceilings or structure of the
Premises so as to cause strain, damage or interference with the
structural parts, loadbearing framework, roof, foundations, joists and
external walls of the Premises.
3.14.9 Not to overload the lifts, electrical installation or Conducting Media
in the Premises.
3.14.10 Not to do or omit to do anything which may interfere with or which
imposes an additional loading on any ventilation, heating,
air-conditioning or other plant or machinery serving the Premises.
3.14.11 Not to use the Premises as a betting shop or betting office.
3.14.12 Not to use the Premises for the sale of alcoholic liquor for
consumption either on or off the Premises provided always that the sale
of alcoholic liquor in a staff canteen or at staff functions shall not
be a breach of this provision.
3.14.13 Not to allow any person to sleep in the Premises nor to use the
Premises for residential purposes.
3.14.14 Not to accumulate trade empties on the Premises.
3.14.15 Not to place, leave or install any articles, merchandise, goods or
other things in front of or elsewhere outside the Premises.
3.14.16 Not to permit the drains to be obstructed by oil, grease or other
deleterious matter, but to keep the Premises and the drains serving the
Premises thoroughly cleaned.
3.14.17 Save where paragraphs 1 or 2 of Schedule 1 (Part 2) otherwise provide
not to use any part of the Station Forecourt or the Access Road for the
parking of vehicles nor to impede or obstruct use by any other person
of the Station Forecourt or the Access Road.
3.14.18 Loading and unloading shall take place outside of peak hours for the
arrival and departure of passengers at Bracknell Station which are
6.30am to 9.30am
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and 3.30pm to 7.00pm except by special arrangement with the Station
Manager or other senior representative responsible for the Superior
Landlord's Premises provided always that the Tenant shall be entitled
to use the three car parking spaces referred to in paragraph 2.2 of
part 2 of schedule 1 for the purposes of loading and unloading at any
time and normal office deliveries such as post and couriers shall not
be a breach of this clause.
3.14.19 Not to install or renew a video security system at the Premises without
first affording to the Superior Landlord the opportunity to participate
in an integrated security system for Station House and Bracknell
Station and without the consent of the Superior Landlord (such consent
not to be unreasonably withheld or delayed).
3.14.20 Not to use or make alterations to the Landscaped Area which would
affect the safety or stability of the railway and Station House or
would inhibit emergency access to the railway.
3.14.21 Not otherwise to change the use of or make alterations to the
Landscaped Area without the consent of the Landlord and the Superior
Landlord (such consents not to be unreasonably withheld or delayed).
3.14.22 To be responsible for obtaining and maintaining a fire certificate and
a health and safety file in relation to the Premises throughout the
Term.
3.15 ADVERTISEMENTS AND SIGNS
3.15.1 Not to place or display on the exterior or the windows of the Premises
or inside the Premises so as to be visible from the exterior of the
Premises any name, writing, notice, sign, illuminated sign, display of
lights, placard, poster, sticker or advertisement other than:
3.15.1.1 a suitable sign of a size and kind first approved by the
Landlord or the Landlord's surveyor (such approval not to be
unreasonably withheld or delayed) showing the Tenant's name
and trade;
3.15.1.2 a suitable sign or notice board for the sale or letting of the
Tenant's interest in the Premises and those deriving title
from the Tenant;
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3.15.1.3 such other notices as the Landlord may in its absolute
discretion approve.
3.15.2 If any name, writing, notice, sign, placard, poster, sticker or
advertisement is placed or displayed in breach of these provisions, to
permit the Landlord to enter the Premises and remove such name,
writing, notice, sign, placard, poster, sticker or advertisement and to
pay to the Landlord on demand the reasonable expense of so doing.
3.15.3 The Tenant shall not fix or place in the Premises any sign placard or
advertisement so as to interfere with the safe operation of the
Superior Landlord's railway.
3.16 COMPLIANCE WITH STATUTES, ETC
3.16.1 Except where such liability may be expressly within the Landlord's
covenants in this Lease to comply in all respects with the provisions
of all statutes from time to time, and the requirements of any
competent authority, relating to the Premises or anything done in or on
them by the Tenant, and to keep the Landlord indemnified against
liability in consequence of the Tenant's failure to comply.
3.16.2 In particular (but without affecting the general operation of clause
3.16.1):
3.16.2.1 to execute all works and do all things on or in respect of the
Premises which are required under the Offices, Shops and
Railway Premises Act 1963;
3.16.2.2 to comply with all requirements under any present or future
statute, order, bylaw or regulation as to the use or
occupation of, or otherwise concerning, the Premises; and
3.16.2.3 to execute with all due diligence (commencing work within two
months or sooner if necessary and then proceeding
continuously) all works to the Premises for which the Tenant
is liable under this clause 3.16 and of which the Landlord has
given notice to the Tenant;
and, if the Tenant does not comply with clause 3.16.2.3, to permit the
Landlord to enter the Premises to carry out the works, and to indemnify
the Landlord on demand for the reasonable expenses properly incurred of
so doing (including
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professional fees), such expenses and any Interest on them to be
recoverable as rent in arrear.
3.17 PLANNING PERMISSIONS
3.17.1 Not without the consent of the Landlord (such consent not to be
unreasonably withheld or delayed) to make any application under the
Planning Acts, to any local planning authority for permission to
develop, including change of use of, the Premises.
3.17.2 To indemnify the Landlord against any development charges, other
charges and expenses payable in respect of planning applications and to
reimburse to the Landlord the reasonable costs it may properly incur in
connection with such consent.
3.17.3 To keep the Landlord indemnified against any reasonable expense
properly incurred in consequence of the use of the Premises reverting
to the use existing before the application was made.
3.17.4 As soon as reasonably practical but at least within seven days of
receipt by the Tenant to give the Landlord full particulars in writing
of the grant of planning permission.
3.17.5 Not to implement any planning permission if the Landlord makes
reasonable and proper objection to any of the conditions subject to
which it has been granted.
3.18 COMPLIANCE WITH TOWN PLANNING AND ENVIRONMENTAL REQUIREMENTS
3.18.1 To perform and observe the requirements of the Planning Acts and all
other statutes and regulations relating to town and country planning
and environmental protection applying to the Premises, and to obtain
any development or other consent, permit or licence by reason of the
development, or manner of use, of or on the Premises by the Tenant.
3.18.2 To keep the Landlord indemnified against liability by reason of the
Tenant's failure to obtain any requisite development or other consent,
permit or licence or in complying with the requirements of statutes and
regulations.
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3.18.3 To give full particulars to the Landlord of any notice or proposal for
a notice, or order or proposal for an order, made, given or issued to
the Tenant under the Planning Acts and all other statutes or
regulations relating to town and country planning, environmental
protection or otherwise within seven days after receipt by the Tenant.
3.18.4 As soon as is reasonably practicable to take all reasonable and
necessary steps to comply with any such notice or order.
3.18.5 At the request and cost of the Landlord, to make or join with the
Landlord in making such objections or representations against or in
respect of any proposal for such a notice or order as the Landlord may
consider expedient unless it shall be demonstrably contrary to the
interests of the Tenant as occupier to do so.
3.19 CLAIMS MADE BY THIRD PARTIES
3.19.1 To keep the Landlord indemnified against liability in respect of any
accident, loss or damage to person or property in the Premises.
3.19.2 To keep the Landlord indemnified against liability to third parties by
reason of breach by the Tenant of its obligations in this Lease.
3.20 EXPENSES OF THE LANDLORD
To pay to the Landlord on demand all reasonable expenses (including
bailiffs and professional fees) properly incurred by the Landlord:
3.20.1 incidental to or in proper contemplation of the preparation and service
of a schedule of dilapidations during or after the termination of this
Lease and/or a notice under sections 146 and 147 of the Law of Property
Act 1925, even if forfeiture is avoided otherwise than by relief
granted by the court;
3.20.2 in the recovery or attempted recovery of arrears of rent or additional
rent due from the Tenant; and
3.20.3 in connection with every application for any consent or approval made
under this Lease (whether or not consent or approval is given save
where any refusal is not lawfully made).
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3.21 OBSTRUCTION OF WINDOWS OR LIGHTS AND EASEMENTS
3.21.1 Not to stop up or obstruct any windows of the Premises or any other
buildings belonging to the Landlord.
3.21.2 Not to permit any easement or similar right to be made or acquired
into, against or on the Premises.
3.21.3 Where any such easement or right is or is attempted to be acquired,
immediately to give notice of the circumstances to the Landlord, and at
the request and cost of the Landlord to adopt such course as it may
reasonably and properly require for preventing the acquisition of the
easement or right.
3.22 CLEANING OF WINDOWS
To keep the interior and exterior glass in the windows of the Premises
clean.
3.23 VALUE ADDED TAX
3.23.1 To pay value added tax on taxable supplies of goods and services made
by the Landlord in connection with this Lease, for which the
consideration is to be treated as exclusive of value added tax
chargeable on the payment.
3.23.2 Where the Landlord is entitled under this Lease to recover from the
Tenant the costs of goods and services supplied to the Landlord, but in
respect of which the Landlord makes no taxable supply to the Tenant, to
indemnify the Landlord against so much of the input tax on the cost for
which the Landlord is not entitled to credit allowance under section 26
of the Value Added Tax Act 1994.
3.24 NOTICES TO LET AND FOR SALE
3.24.1 To allow the Landlord or its agents to enter the Premises upon
reasonable notice and at any reasonable time:
3.24.1.1 (unless the Tenant has served notice (under section 26 of the
Landlord and Tenant Act 1954) on the Landlord to renew its
lease) within six months before the termination of this Lease
to fix on the Premises a notice board for reletting the
Premises; and
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3.24.1.2 to fix on some part of the Premises a notice board for the
sale of the interest of the Landlord;
provided that the boards do not interfere with the access of light and
air to the Premises and do not materially interfere with the Tenant's
use and enjoyment of the Premises.
3.24.2 Not to remove or obscure any such notice board.
3.24.3 To permit all persons authorised by the Landlord or its agents to view
the Premises upon reasonable notice (at reasonable and proper hours)
without interruption in connection with any such letting or sale.
3.25 ENCUMBRANCES
To observe and perform by way of indemnity only the obligations and
restrictions comprising the Encumbrances so far as they relate to the
Premises and are capable of being enforced, and to keep the Landlord
indemnified against liability for the breach of the obligations and
restrictions.
3.26 SUPERIOR LEASE COVENANTS
Not to do anything which would constitute a breach of the tenant's
covenants and conditions in the Superior Lease and in the event of
conflict the Tenant's covenants contained herein shall prevail.
4 PROVISOS
The parties agree to the following provisos.
4.1 PROVISO FOR RE-ENTRY
4.1.1 The Landlord may terminate this Lease by re-entering the Premises (or a
part of them) itself or by an authorised agent if:
4.1.1.1 any rent remains unpaid twenty-one days after becoming due for
payment (whether or not formally demanded); or
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4.1.1.2 the Tenant fails to perform or observe any of its covenants or
the conditions in this Lease or allows any distress or
execution to be levied on its goods; or
4.1.1.3 an event of insolvency occurs in relation to the Tenant or any
guarantor of the Tenant.
4.1.2 Re-entry in exercise of the rights in clause 4.1.1 does not affect any
other right or remedy of the Landlord for breach of covenant or
condition by the Tenant occurring before the termination of this Lease.
4.1.3 The expression an event of insolvency in clause 4.1.1 includes:
4.1.3.1 (in relation to a company or other corporation which is the
Tenant or a guarantor) inability of the company to pay its
debts, entry into liquidation whether compulsory or voluntary
(except for the purpose of amalgamation or reconstruction),
the passing of a resolution for a creditors' winding-up, the
making of a proposal to the company and its creditors for a
composition in satisfaction of its debts or a scheme of
arrangement of its affairs, the application to the court for
an administration order, and the appointment of a receiver or
administrative receiver; and
4.1.3.2 (in relation to an individual who is the Tenant or a
guarantor) inability to pay or having no reasonable prospect
of being able to pay his debts, the presentation of a
bankruptcy petition, the making of a proposal to his creditors
for a composition in satisfaction of his debts or a scheme of
an arrangement of his affairs, the application to the court
for an interim order, and the appointment of a receiver or
interim receiver;
and in relation to the various events of insolvency they are, wherever
appropriate, to be interpreted in accordance and conjunction with the
relevant provisions of the Insolvency Act 1986.
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4.2 POWER FOR LANDLORD TO DEAL WITH ADJOINING PROPERTY
4.2.1 The Landlord may deal as it thinks fit with any other property
adjoining or nearby belonging to the Landlord, and may erect or permit
to be erected on such property any buildings irrespective of whether
they affect or diminish the light or air which may now or at any time
be enjoyed by the Tenant in respect of the Premises.
4.2.2 The Landlord may without obtaining any consent from or making any
arrangement with the Tenant, alter, reconstruct or modify in any way or
change the use of the Access Road and the Station Forecourt so long as
proper means of entrance to and exit from the Premises are afforded and
essential services are maintained.
4.3 ARBITRATION OF DISPUTES BETWEEN TENANTS
If any dispute or disagreement at any time arises between the Tenant
and the tenants and occupiers of any adjoining or neighbouring property
belonging to the Landlord relating to the Conducting Media serving, or
easements or rights affecting, the Premises or any adjoining or
neighbouring property, the matter in dispute or disagreement is to be
fairly determined by the Landlord, by which determination the Tenant
shall be bound save in the case of manifest error or as to matters of
law.
4.4 EXEMPTION FROM LIABILITY IN RESPECT OF SERVICES
4.4.1 The Landlord shall not be liable to the Tenant for any loss, damage or
inconvenience which may be caused by reason of:
4.4.1.1 temporary interruption of services during periods of
inspection, maintenance, repair and renewal;
4.4.1.2 breakdown of or defect in any plant and machinery, services or
Conducting Media in the Premises or neighbouring or adjoining
property; or
4.4.1.3 events beyond the reasonable and proper control of the
Landlord.
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4.5 ACCIDENTS
The Landlord shall not be responsible to the Tenant or the Tenant's
licensees nor to any other person for any accident, happening or injury
suffered in the Premises.
4.6 REMOVAL OF PROPERTY AFTER DETERMINATION OF TERM
4.6.1 If, after the Tenant has vacated the Premises following the termination
of this Lease, any property of the Tenant remains in the Premises, and
the Tenant fails to remove it within 14 days after being requested in
writing by the Landlord to do so, the Landlord may as the agent of the
Tenant sell such property and hold the proceeds of sale, after
deducting the reasonable costs and expenses of removal, storage and
sale properly incurred by it, to the order of the Tenant.
4.6.2 The Tenant will indemnify the Landlord against any liability incurred
by it to any third party whose property has been sold by the Landlord
in the bona fide mistaken belief (which is to be presumed unless the
contrary is proved) that it belonged to the Tenant and was liable to be
dealt with as such under this clause 4.6.
4.7 NOTICES, CONSENTS AND APPROVALS
4.7.1 Any notice served under or in connection with this Lease is to be in
writing and to be treated as properly served if compliance is made with
either the provisions of section 196 of the Law of Property Act 1925
(as amended by the Recorded Delivery Service Act 1962) or section 23 of
the Landlord and Tenant Act 1927.
4.7.2 Any consent or approval under this Lease is required to be obtained
before the act or event to which it applies is carried out or done, and
is to be treated as effective only if the consent or approval is given
in writing.
4.7.3 Any notice to be served on the original Tenant shall be addressed to
the office manager at the Premises or such other address as notified to
the Landlord from time to time in writing and shall comply with the
provisions of clause 4.7.1.
4.8 SUPERIOR LANDLORD
4.8.1 The powers, rights, matters and discretions granted and reserved to the
Landlord under this Lease are also granted and reserved to or
exercisable by any Superior
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Landlord, its servants, agents or workpeople to the extent required
under the Superior Lease.
4.8.2 Nothing in this Lease is to be construed as implying that the Superior
Landlord is under any obligation not unreasonably to withhold its
consent or approval in respect of any application for a licence by the
Tenant to the Landlord.
4.8.3 If the Tenant does or proposes to do any matter or thing for which the
consent of the Superior Landlord is required, the Tenant shall bear and
indemnify the Landlord against the cost of obtaining such consent and
all incidental professional fees and disbursements.
4.8.4 The Landlord may, notwithstanding any provision to the contrary
elsewhere in this Lease, withhold consent or approval in any matter
where the Superior Landlord's consent or approval is required, and the
Landlord (having used its reasonable and proper endeavours) is unable
to obtain it.
4.9 EASEMENTS
A person exercising any right of entry granted or reserved under the
Lease must:
4.9.1 exercise the right in a manner which causes as little damage and
inconvenience as is practicable in all the circumstances; and
4.9.2 make good any physical damage caused as soon as is reasonably
practicable.
5 LANDLORD'S COVENANTS
The Landlord covenants with the Tenant as follows.
5.1 QUIET ENJOYMENT
That the Tenant, paying the rents reserved by, and performing the
Tenant's covenants in this Lease, may lawfully and peaceably enjoy the
Premises throughout the Term without interruption by the Landlord or by
any person lawfully claiming through, under or in trust for the
Landlord.
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5.2 SUPERIOR LEASE OBLIGATIONS
5.2.1 To pay the rent reserved by, and observe and perform the covenants of
the tenant and the conditions contained in, the Superior Lease, except
in so far as the covenants fall to be observed and performed by the
Tenant by reason of the obligations of the Tenant in this Lease.
5.2.2 The Landlord acknowledges the right of the Tenant to production and to
take copies of the Superior Lease.
5.3 VALUE ADDED TAX
To provide the Tenant with a valid VAT invoice in respect of payments
made by the Tenant to the Landlord upon which the Tenant has paid VAT.
6 OBLIGATIONS IN SCHEDULES TO THIS LEASE
The Landlord and the Tenant mutually covenant to observe and perform
their respective obligations and the conditions in the schedules.
7 GUARANTEE PROVISION
7.1 GUARANTEE
7.1.1 The Guarantor guarantees to the Landlord that the Tenant will pay the
rents reserved by, and perform and observe the Tenant's covenants in,
this Lease, and the Guarantor will pay and make good to the Landlord on
demand any losses, damages, reasonable costs, and expenses suffered or
properly incurred by the Landlord if the Tenant fails to do so.
7.1.2 The Guarantor also guarantees to the Landlord that the Tenant will
observe and perform its obligations under any authorised guarantee
agreement to be entered into by the Tenant under the terms of this
Lease, and will pay and make good to the Landlord on demand any losses,
damages, costs and expenses suffered or incurred by the Landlord if the
Tenant fails to do so.
7.1.3 For the purposes of this clause 7, references to the "Tenant" are to
the Tenant in relation to whom the Guarantor's guarantee is given but
not to a lawful assignee of that Tenant.
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7.2 NO WAIVER OR RELEASE OF LIABILITY
The Guarantor will not be released from liability under these
provisions because of:
7.2.1 forbearance, the granting of time or other indulgence of the Landlord;
or
7.2.2 a variation of this Lease, and the guarantee of the Guarantor in clause
7.1 is to operate in relation to this Lease as it may be varied from
time to time provided that the Guarantor will not be liable for any
increased liability arising from a variation to which it has not
consented.
7.3 GUARANTOR TO ACCEPT NEW LEASE UPON DISCLAIMER
7.3.1 If this Lease is terminated by re-entry by the Landlord or by
disclaimer, the Guarantor will (on notice given by the Landlord within
three months after the date of termination) take from the Landlord an
underlease of the Premises.
7.3.2 The underlease to be granted to the Guarantor under clause 7.3.1 is to
be on the following terms:
7.3.2.1 the term is to commence on the date of termination or
disclaimer of this Lease and to be equal to the residue of the
Term which would have remained unexpired at that date if this
Lease had not then been terminated or disclaimed;
7.3.2.2 the yearly rent is to be the same as would have been payable
under this Lease if it had not been terminated and, if a rent
review operative from a review date before the grant of the
underlease had not been completed, the Guarantor will complete
the rent review with the Landlord as if it had been the Tenant
under this Lease in order to establish the commencing yearly
rent under the underlease;
7.3.2.3 the underlease is otherwise to be on the same terms and
conditions as would have applied under this Lease if it had
not been terminated; and
7.3.2.4 the Guarantor is to succeed to the rights, and assume the
liability, of the Tenant under this Lease as if the Lease had
not been terminated.
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7.4 SUBORDINATION OF RIGHTS OF THE GUARANTOR
7.4.1 The provisions of clause 7.4.2 are to apply unless the Landlord has no
subsisting claim against the Tenant for non-payment of rent or for
breach of obligation under this Lease.
7.4.2 The Guarantor may not:
7.4.2.1 seek to recover from the Tenant, or any third party whether
directly or by way of set-off, lien, counterclaim or otherwise
or accept any money or other property or security, or exercise
any rights in respect of any sum which may be or become due to
the Guarantor on account of the failure by the Tenant to
observe and perform the tenant covenants in this Lease;
7.4.2.2 (in competition with the Landlord) claim, prove or accept any
payment in a winding-up, liquidation, bankruptcy, composition
with creditors or other form of arrangement on the insolvency
of the Tenant, for money owing to the Guarantor by the Tenant;
nor
7.4.2.3 exercise any right or remedy in respect of any amount paid by
the Guarantor under this Lease or any liability incurred by
the Guarantor in observing, performing or discharging the
obligations and covenants of the Tenant.
7.4.3 The Guarantor warrants that it has not taken, and undertakes with the
Landlord that it will not without the consent of the Landlord take, any
security from the Tenant in respect of this guarantee and, if security
is nevertheless taken, it is to be held on trust for the Landlord as
security for the respective liabilities of the Guarantor and the Tenant
7.5 WAIVER OF RIGHTS
The Guarantor hereby waives its rights pursuant to North Carolina
General Statutes Chapter 26-7 through 26-9
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8 EXPERT DETERMINATION
8.1 In this Lease, where any issue is required to be dealt with by, or
submitted for the determination of, an independent expert, the
following provisions of this clause are to apply but, in case of
conflict with other provisions specifically relating to expert
determination elsewhere in this Lease, those other provisions are to
prevail to the extent of the conflict.
8.2 The expert is to be appointed by the parties jointly, or if they cannot
or do not agree on the appointment, appointed by whichever of the
following is appropriate:
8.2.1 the president from time to time of the Royal Institution of Chartered
Surveyors; or
8.2.2 the president from time to time of the Institute of Chartered
Accountants in England and Wales;
or in either case the duly appointed deputy of the president, or other
person authorised by him to make appointments on his behalf.
8.3 The person so appointed is to act as an expert, and not as an
arbitrator.
8.4 The expert so appointed must afford the parties the opportunity within
such a reasonable and proper time limit as he may stipulate to make
representations to him (accompanied by professional rental valuations,
reports or other appropriate evidence in the relevant circumstances)
and permit each party to make submissions on the representations of the
other.
8.5 The fees and expenses of the expert, including the cost of his
nomination, are to be borne as the expert may direct (but in the
absence of such a direction, by the parties in equal shares), but
(unless they otherwise agree) the parties will bear their own costs
with respect to the determination of the issue by the expert.
8.6 One party may pay the costs required to be borne by another party if
they remain unpaid for more than 21 days after they become due and then
recover these and any incidental expenses incurred from the other party
on demand.
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8.7 If the expert refuses to act, becomes incapable of acting or dies, the
Landlord or the Tenant may request the appointment of another expert in
his stead under paragraph 8.2.
8.8 The determination of the independent expert, except in case of manifest
error, is to be binding on the Landlord and the Tenant.
9 COVENANT STATUS OF THIS LEASE
This Lease is a new tenancy within the meaning of section 1 of the
Landlord and Tenant (Covenants) Act 1995.
10 CHOICE OF JURISDICTION AND CHOICE OF LAW
10.1 This Lease shall be governed by and construed in accordance with
English law.
10.2 The parties hereby irrevocably submit to the non-exclusive jurisdiction
of the English courts for the purpose of bringing and/or enforcing any
claim arising out of or relating to this Lease and the Guarantor hereby
waives any objections it may have to such jurisdiction on the grounds
of lack of personal jurisdiction of any such court or the laying of
venue of any such court or on the basis of forum non-convenience or
otherwise.
10.3 The Guarantor hereby designates appoints and empowers Quintiles
Transnational Corporation, care of The Treasury Department, of Innovex
House, Marlow Park, Bladon, Buckinghamshire SL7 1TB or such other
address as notified to the Landlord from time to time in writing as its
authorised agent for service of process and any other legal documents
in England for the purposes of any such action or proceedings.
10.4 The Guarantor undertakes to pay the reasonable costs properly incurred
in obtaining and enforcing any judgement under the guarantee contained
in this Lease including the cost of any appeal and attorney's fees.
Delivered as a deed on the date of this document.
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SCHEDULE 1
THE PREMISES
PART 1
DESCRIPTION OF THE PREMISES
The land and office premises known as Station House, Market Street, Bracknell
comprised in title number BK335762, including:
1 ALL THAT property situate at ground floor level shown for
identification purposes only edged red on Plan 5297/400
2 ALL THAT the property situate at first floor level comprising the first
floor of Station House shown for identification purposes only edged red
on Plan 5297/401 extending from the level of the undersurface of and
includes the concrete floor slab thereof to the level of the
undersurface of the concrete floor slab now supporting the second floor
of Station House and includes the Canopy and the airspace between the
lower surface of the Canopy and the level of the undersurface of the
concrete floor slab now supporting the second floor of Station House
but EXCLUDING:-
(a) the airspace over the Canopy above the level of the undersurface of the
said second floor floor slab; and
(b) the airspace beneath the undersurface of the Canopy on the south and
west elevations of Station House; and
(c) the airspace above and beneath the New Canopy.
3 ALL THAT the property situate at and above the second floor level as
shown for identification purposes only edged red on Plan 5297/402 and
extending from the level of the undersurface of and includes the
concrete floor slab of the second floor of Station House and includes
all floors and structures and airspace above the same and the soffit
above the Station Forecourt now attached or intended to be attached to
the undersurface of the concrete floor slab supporting the second floor
4 Stanchions columns piles and other foundations supporting all
structural parts of the properties FIRSTLY, SECONDLY and THIRDLY
described to include any
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EXHIBIT A-1
Floor Plan of Ground Floor
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EXHIBIT A-2
Floor Plan of First Floor
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EXHIBIT A-3
Floor Plan of Upper Floor
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EXHIBIT A-4
Location Plan
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external coverings affixed thereto and the subsoil beneath the said
stanchions columns piles and other foundations
PART 2
RIGHTS ENJOYED WITH DEMISE
1 OF WAY
A right of way (in common with the Landlord and the Superior Landlord
and all persons authorised by the Landlord and the Superior Landlord)
with or without vehicles at all times and for all purposes in
connection with the use of the Premises over the Station Forecourt and
the Access Road.
2 TO PARK CARS
2.1 A right to park 127 cars upon such part of the Car Park as the
Landlord's Surveyor shall direct from time to time or in the event of
the Car Park being destroyed or otherwise rendered unfit for use upon
such other suitable and proper area in similar proximity to the
Premises as shall be substituted therefor by the Landlord.
2.2 A right to park 3 cars on the forecourt in front of Station House in
the position as shown for identification purposes only hatched blue on
Plan 5297/400 provided that the right contained in this paragraph 2.2
may upon at least one month's prior written notice be suspended during
such period as the Superior Landlord may reasonably require or
terminated if need be:
2.2.1 in connection with the redevelopment of the Superior Landlord's
Premises;
2.2.2 or where circumstances arise relating to the safety of the Superior
Landlord's railway or any person lawfully resorting to the Station
Forecourt and Access Road;
2.2.3 where it is necessary or expedient for the Superior Landlord to do in
the interests of traffic management on the Station Forecourt and Access
Road.
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3 TO INSPECT AND INSTALL CONDUCTING MEDIA
A right subject to prior arrangement with the Superior Landlord's
Surveyor to inspect, maintain, repair, renew, replace or otherwise
install and make connections to the Conducting Media serving Station
House but located on some part of the Superior Landlord's Premises the
Station Forecourt and/or the Access Road and to construct install
maintain renew or replace Conducting Media as may reasonably be
required on the carrying out of any permitted works to the Premises
pursuant to Schedule 6 of the Superior Lease in such alternative
positions as shall be agreed with the Superior Landlord together with
the right of passage of water, soil, gas, electricity and other
services through such Conducting Media as may exist or may hereafter be
so constructed or installed at any time during the Term.
4 TO SUSPEND WINDOW CLEANING CRADLES
A right to suspend and use window cleaning cradles in the airspace
around Station House the Tenant making good forthwith to the
satisfaction of the Superior Landlord's Surveyor all damage caused in
the exercise of such right.
5 TO RUN SERVICES
The free running and passing of water, soil, gas, telecommunications
and electricity coming from and passing through the Superior Landlord's
Premises and any adjoining land or premises belonging to the Landlord
or the Superior Landlord unless for the exclusive use of the Superior
Landlord's Premises or the Superior Landlord's adjoining land.
6 TO RETAIN CANOPY
The right to retain the New Canopy at first floor level.
7 OF SUPPORT
A right of support for the existing foundations columns and stanchions
or any which may replace the same from the subsoil beneath the same.
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8 TO AFFIX SCAFFOLDING
A right from time to time (but only after submitting plans
specifications schedules and methods of working to the Superior
Landlord for approval and obtaining its written approval thereto) to
enter onto and to place or affix on and upon so much of the Station
Forecourt the Up Platform and so much of the Superior Landlord's
adjoining land and the Superior Landlord's Premises as the Superior
Landlord shall agree (acting reasonably) scaffolding for the purpose of
inspecting maintaining repairing altering replacing renewing rebuilding
or redeveloping the Premises in accordance with this Lease.
9 TO AFFIX DECORATIVE FINISHES
A right to affix to the exterior surfaces of the Premises bounding the
Superior Landlord's Premises such decorative finishes or external
coverings as the Tenant may require in accordance with this Lease
subject to the approval of the Superior Landlord.
10 TO MAINTAIN AND REPLACE FOUNDATIONS ETC
The right to maintain repair replace and renew the existing foundations
columns stanchions and floor slabs of the Premises and other buildings
constructed on or forming part of the Premises and in the event of
works being carried out pursuant to Schedule 6 of the Superior Lease
the right to demolish the existing foundations columns stanchions and
floor slabs as may be approved by the Superior Landlord pursuant to the
provisions of Schedule 6 of the Superior Lease in such other positions
over or on the Superior Landlord's Premises and the Station Forecourt
as may be agreed with the Superior Landlord from time to time provided
always that such columns stanchions and associated foundations shall
not be altered replaced or be constructed so as to encroach on the
Superior Landlord's other adjoining land or as to reduce the usable
area or access to the Station Forecourt.
11 TO OVERFLY CRANES
A right to overfly cranes over the Superior Landlord's Premises the
Station Forecourt and the Access Road and the Superior Landlord's other
adjoining land subject to the provisions of paragraph 2(g) of schedule
6 of the Superior Lease.
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12 TO ENTER
A right to enter the Superior Landlord's Premises the Station Forecourt
and the Access Road the Up Platform and the Superior Landlord's
immediately adjoining land not comprising the Superior Landlord's
railway and platforms with all necessary equipment and materials for
the purposes of:
12.1 inspecting the Premises or any part or parts thereof where such
inspection cannot otherwise be reasonably and economically carried out
without such entry and subject to the provisions of schedule 6 of the
Superior Lease to execute building works additions repairs recladding
alterations works of redevelopment in accordance with this Lease and
the like where such works cannot otherwise reasonably and economically
be carried out without such entry;
12.2 exercising any of the rights granted in paragraphs 2-11 inclusive of
this schedule; and
12.3 performing any other Tenant's rights or obligations contained in this
Lease or as may be required by statute which cannot otherwise
reasonably or economically be carried out without such entry.
13 TO ACCESS THE GROUND FLOOR PLANT ROOM
Insofar as the Landlord is able to grant the same and subject to the
rights of Southern Electricity Board a right on prior arrangement with
Southern Electricity Board of access to and egress from the electricity
plant room located on the ground floor of Station House (but excluded
from this demise) for the purpose of operating the electricity switch
gear.
14 TO REMODEL SUPERIOR LANDLORD'S PREMISES
A right to re-model (to include demolishing and rebuilding the Superior
Landlord's Premises and the Station Forecourt if such remodelling
demolishing or rebuilding is reasonably required) as a result of works
being carried out pursuant to the provisions of Schedule 6 of the
Superior Lease.
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15 RIGHTS GRANTED UNDER THIS LEASE BY REFERENCE TO SCHEDULE 6 OF THE
SUPERIOR LEASE
The Tenant is only entitled to exercise rights under Schedule 6 of the
Superior Lease subject to the terms of this Lease and in the event of
any conflict this Lease will prevail.
PART 3
EXCEPTIONS AND RESERVATIONS
1 FREE PASSAGE OF SERVICES ETC
The free and uninterrupted passage of water, steam, soil, air, gas,
electricity and telephone communications from and to any part of any
adjoining or neighbouring property through the Conducting Media
commonly used for those purposes which are now or may in the future but
during the period of eighty years after the date of this Lease be in,
upon or under the Premises.
2 ENTRY
All rights of entry upon the Premises referred to in clauses 3 and 4
and for the purposes of paragraph 4 of schedule 3 provided that in
exercising the said rights the Landlord will comply with any reasonable
conditions imposed by the Tenant cause as little interference as
possible to the Premises and the use and occupation of the Premises by
the Tenant and its lawful undertenants and make good to the reasonable
satisfaction of the Tenant all physical damage thereby caused to the
Premises.
3 MINES AND MINERALS
The mines and minerals in and under the Premises excluding any right of
support from such mines and minerals.
4 FOR BETTER ENJOYMENT OF SUPERIOR LANDLORD'S PREMISES
The right for the Superior Landlord from time to time for the better
use and enjoyment of the Superior Landlord's Premises:
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4.1 to paint decorate or otherwise finish the surfaces of the structural
parts of the Premises where such surfaces enclose and form part of the
Superior Landlord's Premises and the undersurface of the Canopy (or
such structure as may replace the same on any redevelopment or
reinstatement of the Premises or any part thereof under the terms of
this Lease) and to affix thereto such fittings, partitions, heating,
lighting or other equipment, advertisements or signs as it may think
fit subject to first obtaining the approval of the Tenant (such
approval not to be unreasonably withheld) if the works proposed affect
any part of the structure or the appearance of the Premises;
4.2 to have maintain alter and remove any drains, wire and cables extending
beneath the floors of or attached to and solely serving the Superior
Landlord's Premises subject to obtaining the agreement of the Tenant
(not to be unreasonably withheld or delayed) where the removal or
alternative siting of such drains, wires or cables would adversely
affect the support to or stability of the foundations and supports
supporting the Premises;
4.3 to design, affix and maintain such electric lighting, illuminated signs
and public address systems as the Superior Landlord shall from time to
time require on the undersurface of the Canopy on the frontage of
Station House at first floor level;
4.4 to design, affix and maintain such lighting, public address and
security systems as the Superior Landlord shall from time to time
require on the under surface of the second floor slab of Station House
or in such alternative suitable locations as may be agreed by the
Tenant on any reinstatement or redevelopment of Station House pursuant
to the provisions of the Superior Lease.
5 TO LAY CONDUCTING MEDIA ETC
The right from time to time and at all times during the Term (subject
to not overloading the same and notifying the Tenant prior to
exercising the right hereby granted and complying with all of the
Tenant's reasonable requirements in respect of such exercise):
5.1 to fix, construct, connect into place, maintain and use under the
Premises any sewer, drain, watercourse or pipe which may be necessary
for the purposes of the proper operation of the Superior Landlord's
railway undertaking;
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5.2 to erect, fix, maintain and use under the Premises any wires or cables
which may be necessary for the purposes of the proper operation of the
Superior Landlord's undertaking;
5.3 to carry out any works which may in the opinion of the Superior
Landlord acting reasonably be necessary for the proper operation of the
Superior Landlord's undertaking.
6 A RIGHT TO USE ADJOINING PROPERTY
Full right and liberty from time to time for the Landlord and the
Superior Landlord to use their respective adjoining or neighbouring
lands in such manner as they may think fit to build or execute any
works upon such lands provided that the access of light and air to the
Premises and the beneficial use and occupation of the same shall not be
materially affected thereby and the free and uninterrupted exercise of
the rights granted and enjoyed under this Lease are not materially
impeded.
7 EMERGENCY ACCESS
The right in cases of emergency for the Superior Landlord, their
customers, employees and visitors using the Station the Station
Forecourt and the Access Road and for the Landlord to enter and pass
over the Landscaped Area to reach the public highway.
8 ENTRY FOR REPAIRS
The right for the Superior Landlord their respective employees and
contractors and for the Landlord to enter on the Landscaped Area with
or without machinery and equipment for the purpose of carrying out
repairs on or from the Landscaped Area to the railway and Bracknell
Station and to carry out works referred to in paragraph 6.
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PART 4
ENCUMBRANCES
1 The matters entered in and indexed upon the registers of title of title
number BK 335762 except financial charges.
2 Deed of Variation Supplemental Lease and Licence for Alterations dated
18 December 1995 made between Railtrack PLC (1) South West Trains
Limited (2) and the Landlord (3).
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SCHEDULE 2
RENT REVIEWS
1 THE REVIEW DATES
The yearly rent payable under this Lease is to be reviewed on the
expiry of each consecutive period of 5 years of the Term calculated
from commencement (referred to in this schedule as the review date and
the Relevant Review Date shall be construed accordingly) and with
effect on and from the Relevant Review Date, the reviewed rent (as
agreed or determined in accordance with this schedule) is to become
payable as the yearly rent reserved by this Lease.
2 UPWARD-ONLY RENT REVIEWS
The reviewed rent is to be the greater of:
2.1 the yearly rent reserved under this Lease immediately preceding the
Relevant Review Date; and
2.2 the market rent of the Premises at the Relevant Review Date.
3 THE MARKET RENT
For the purposes of this Lease, the expression market rent means the
yearly rent at which the Premises might reasonably and properly be
expected to be let in the open market by a willing landlord to a
willing tenant:
3.1 with vacant possession;
3.2 for a term of 10 years from the Relevant Review Date having a rent
review, in the same terms as this Lease, at the expiry of each period
of five years throughout the term;
3.3 without the payment of a premium by the willing tenant;
3.4 on the basis that the willing tenant would receive as a term of the
letting such a rent-free or concessionary rental period, or other
inducement for fitting out purposes only, as the willing landlord would
negotiate with the willing tenant, and the rate of the market rent
payable by the Tenant from the Relevant Review Date
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would be such as the willing tenant would pay at the expiry of the
rent-free or concessionary rental period, or following the receipt of
the inducement; and
3.5 subject to the provisions of this Lease, other than the length of the
term and the amount of rent, but including these provisions for rent
review;
but on the assumption, if not the fact, that at the Relevant Review
Date:
3.6 the Premises have been fitted out ready for occupation and immediate
use for the willing tenant's business so that the willing tenant would
not require a rent or other allowance at the relevant review date for
that purpose (but this assumption does not affect the operation of
paragraph 4.3);
3.7 in case the Premises have been destroyed or damaged they have been
fully reinstated;
3.8 the Premises are in a state of full repair and the covenants of the
Tenant and the Landlord have been fully observed and performed;
3.9 there is not in operation any statute, order or instrument, regulation
or direction which has the effect of regulating or restricting the
amount of rent of the Premises which might otherwise be payable;
3.10 the Premises may be lawfully used throughout the Term as offices (and
any actual restriction or qualification which may be imposed on such
use by the terms of the user covenant in clause 3 or otherwise is to be
disregarded) and that no capital is required to be expended upon the
Premises to enable them to be so used
3.11 the willing tenant and anyone who may become the tenant is a taxable
person who makes only taxable supplies and no exempt supplies (words
and expressions used in this paragraph 3.12 having the meanings
assigned to them respectively in the Value Added Tax Act 1994 and the
regulations made under that act) and that demand for the Premises on
the open market would not be reduced by reason of the Landlord having
elected to waive exemption from value added tax in respect of them
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3.12 the Tenant has received a satisfactory amount of money from the
Landlord to cover future liability for the repair of the Canopy and the
column casings beneath the Canopy
4 MATTERS TO BE DISREGARDED
In agreeing or determining the market rent, the effect upon it of the
following matters are to be disregarded:
4.1 the occupation of the Premises by the Tenant;
4.2 any goodwill attached to the Premises by reason of the carrying on at
the Premises of the business of the Tenant;
4.3 any improvements to the Premises made by the Tenant with the consent of
the Landlord other than those:
4.3.1 made in pursuance of an obligation to the Landlord;
4.3.2 completed by the Tenant more than 21 years before the Relevant Review
Date; or
4.3.3 for which the Landlord has made a financial contribution to the extent
of the contribution; and
4.4 any works carried out by the Tenant which have diminished the market
rent;
and in this paragraph 4, reference to "the Tenant" includes
predecessors-in-title to the Tenant, and subtenants of the Tenant or of
the predecessors-in-title of the Tenant.
5 PROCEDURE FOR DETERMINATION OF MARKET RENT
5.1 The Landlord and the Tenant are to endeavour to agree the market rent
at any time not being earlier than six months before the Relevant
Review Date, but if they have not agreed the market rent three months
before the Relevant Review Date the amount of the market rent is to be
determined by reference to an independent expert.
5.2 The independent expert to be nominated shall be a valuer and chartered
surveyor having not less than ten years' experience of rental valuation
of property being put
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to the same or similar use as the Premises and of property in the same
region in which the Premises are situated.
5.3 The provisions in this Lease relating to expert determination
proceedings shall apply as supplemented by the provisions of this
paragraph 5.
5.4 If the expert refuses to act, becomes incapable of acting or dies the
Landlord or the Tenant may require the appointment of a replacement
expert (as the case may be) in the same manner as applied to the
original appointment but without further right of election under
paragraph 5.1 on the part of the Landlord.
The provisions of clause 8 are to apply to the determination of the
expert to the extent that they do not conflict with the requirements of
this paragraph 5.
6 TIME LIMITS
Time is not of the essence in agreeing or determining the reviewed rent
or of appointing an arbitrator or an expert.
7 RENTAL ADJUSTMENTS
7.1 If the market rent has not been agreed or determined in accordance with
the provisions of this schedule before the Relevant Review Date, then,
until the market rent has been so agreed or determined, the Tenant will
continue to pay, on account, rent at the rate of yearly rent payable
immediately before the Relevant Review Date.
7.2 The Tenant will pay to the Landlord, within seven days after the time
that the market rent has been agreed or determined, all arrears of the
reviewed rent which have accrued in the meantime, with interest equal
to the base rate of Barclays Bank PLC on each of the instalments of the
arrears from the time that it would have become due if the market rent
had then been agreed or determined until payment becomes due from the
Tenant to the Landlord under this paragraph 7.2.
8 REVIEWED RENT RESERVED IN PHASES
The Landlord and the Tenant may, at any time before the market rent is
determined by an expert, settle the reviewed rent in more than one
amount and agree to reserve
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the amounts increasing in phases until the next review date or, if
none, the expiry of the Term.
9 MEMORANDUM OF RENT REVIEW
The parties shall cause a memorandum of the reviewed rent duly signed
by the Landlord and the Tenant to be endorsed on or securely annexed to
this Lease and the counterpart of this Lease.
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SCHEDULE 3
INSURANCE PROVISIONS
1 INSURED RISKS
1.1 Insured Risks means the risks and other contingencies against which the
Premises are required to be, or which may be, insured under this Lease,
but subject to any exclusions, limitations and conditions in the policy
of insurance that the Landlord may properly negotiate.
1.2 Insured Risks include (without limitation) fire, lightning, impact,
explosion, storm, tempest, flood, bursting and overflowing of water
tanks, apparatus or pipes, earthquake, aircraft and devices dropped
from aircraft, theft, subsidence, riot, malicious damage and civil
commotion, and such other risks as the Landlord may consider it prudent
to insure.
1.3 If a risk or contingency itemised, or otherwise included, as an Insured
Risk, can no longer be insured or can only be insured at an uneconomic
rate, the risk or contingency shall cease to be treated as an Insured
Risk from the time that cover is withdrawn and the Landlord has
notified the Tenant of its withdrawal.
2 TENANT'S LIABILITY FOR INSURANCE PREMIUMS
2.1 The Tenant will pay to the Landlord within seven days of demand the
insurance premiums properly incurred by the Landlord.
2.2 Insurance premiums are to include all monies properly expended, or
required to be expended by the Landlord in effecting and maintaining
cover against:
2.2.1 Insured Risks;
2.2.2 four years' loss of rent insurance;
2.2.3 such professional fees as may be incurred in connection with rebuilding
or reinstatement of the Premises;
2.2.4 the costs of demolition, shoring up, and site clearance works;
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2.2.5 reasonable third-party and public liability risks; and
2.2.6 value added tax liability on such items.
2.3 The insurance cover may take into account cover for the effects of
inflation and escalation of costs and fees, the Landlord's reasonable
estimate of the market rent of the Premises as defined in schedule 2 in
the context of ensuing rent reviews and the termination of the Lease.
3 TENANT'S OBLIGATIONS IN RELATION TO INSURANCE COVER
3.1 The Tenant will not do anything which may render void or voidable the
insurance of the Landlord on the Premises and if the Tenant does
anything which may cause insurance premiums to be increased it shall
pay the cost of the additional premium.
3.2 The Tenant will provide efficient fire extinguishers and will adopt
such other precautions against Insured Risks as the Landlord's insurers
may consider appropriate.
3.3 If the insurance of the Landlord is vitiated in whole or in part in
consequence of an act or omission of the Tenant, persons occupying or
enjoying the use of the Premises through or under the Tenant, or their
respective employees, workmen, agents or visitors, the Tenant will pay
to the Landlord on demand a sum equal to the amount of the insurance
monies which have become irrecoverable in consequence of that act or
omission.
3.4 The Tenant may not insure the Premises for any of the Insured Risks in
such a manner as would permit the insurer of the Landlord to average
the proceeds of insurance or cancel insurance cover.
3.5 The Tenant will notify the Landlord immediately it becomes so aware of
the occurrence of damage to the Premises by any of the Insured Risks.
3.6 If the Premises are damaged by Insured Risks, the Tenant will pay to
the Landlord on demand the amount of any uninsured excess to which the
insurance cover of the Landlord is subject.
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<PAGE> 54
3.7 The obligations of the Tenant to repair, and to yield up in repair, the
Premises, are to remain operative to the extent that the insurance of
the Landlord in respect of Insured Risks is vitiated or insurance
monies are withheld by reason of an act or omission of the Tenant,
persons occupying or enjoying the use of the Premises through or under
the Tenant, or their respective employees, workmen, agents or visitors,
but do not otherwise operate in respect of damage to the Premises by
Insured Risks.
3.8 The Tenant will pay the cost of the revaluation of the Premises for
insurance purposes but not more regularly then once every two years.
4 LANDLORD'S OBLIGATION TO INSURE AND REINSTATE
4.1 The Landlord will keep the Premises insured with an insurer of repute
against Insured Risks and other items referred to in paragraph 2.2 for
the full cost of reinstatement, subject to such uninsured excess as the
insurer may reasonably and properly apply.
4.2 Following damage to or destruction of the Premises by an Insured Risk,
the Landlord will use all reasonable endeavours to procure the payment
by the insurer of all sums properly due under the policy at the time
and in the manner required by the policy and will diligently reinstate
or rebuild the Premises, or procure the application of, the proceeds of
the insurance covering reinstatement and rebuilding costs for those
purposes, and will make good any deficiency in the proceeds of the
insurance out of its own resources.
4.3 The obligations of the Landlord in paragraph 4.2 do not apply:
4.3.1 if the Landlord is unable, after using its reasonable and proper
endeavours to do so, to obtain any requisite planning permission or
other consents for the reinstatement or rebuilding of the Premises or
of a building of similar size, character and amenity;
4.3.2 if the Landlord's insurance is vitiated or insurance monies withheld by
reason of an act or omission of the Tenant, persons occupying or
enjoying the use of the Premises through or under the Tenant, or their
respective employees, workmen,
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<PAGE> 55
agents or visitors unless and until the Tenant has paid all sums due
from it under paragraph 3.3; or
4.3.3 if this Lease is, or is to be, determined under paragraph 7.1.
4.4 Where the Premises are substantially damaged or destroyed, the Tenant
may not object to the reinstatement or rebuilding of the Premises in a
form which is not identical to the Premises immediately before the
damage or destruction occurred, if the Premises as reinstated or
rebuilt are of at least an equivalent or similar standard, and afford
amenities which are not inferior to or deficient from those enjoyed by
the Tenant before the damage or destruction.
5 LANDLORD'S OBLIGATIONS IN RELATION TO INSURANCE
5.1 The Landlord will use its reasonable and proper endeavours to procure
that its insurers waive entitlement to rights of subrogation against
the Tenant, persons occupying or enjoying the use of the Premises
through or under the Landlord, and their respective employees, workmen,
agents or visitors.
5.2 The Landlord will notify its insurers of the Tenant's interest in the
Premises and, if practicable, have it noted on the policies of
insurance.
5.3 The Landlord will within seven days of demand provide the Tenant with a
copy of its insurance policies (or other evidence of the conditions of
insurance) on the Premises, and (at the request of the Tenant) with a
receipt for the payment of the last premium or other evidence of
renewal and up-to-date details of the amount of cover.
5.4 The Landlord will promptly notify the Tenant of any changes in its
insurance cover or of the terms on which cover has been effected.
5.5 The Landlord may retain any discount on the insurance premiums or
commission offered to it by its insurer for its exclusive benefit.
6 SUSPENSION OF RENT
6.1 Paragraph 6.2 applies if the Premises are at any time during the Term
so damaged by an Insured Risk as to render the Premises or any part of
them unfit for
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<PAGE> 56
occupation, use or enjoyment, except in the circumstances referred to
in paragraph 4.3.2.
6.2 The rent and additional rent reserved by this Lease, or a fair
proportion of them according to the nature and extent of the damage
sustained, shall be suspended and cease to be payable until the
Premises (excluding fitting-out works and replacement of contents) have
been reinstated and made fit for occupation, use and enjoyment, or, if
earlier, until the expiry of four years from the occurrence of the
damage.
6.3 A dispute as to the amount of the abatement of the rent or the duration
of the period of abatement is to be submitted to a single arbitrator,
by whose decision the parties are to be bound, who is to be appointed
by the parties jointly or, if they do not agree on the appointment, by
the president for the time being of the Royal Institution of Chartered
Surveyors (at the request of either party) and the arbitration is to be
conducted under the Arbitration Act 1996.
7 OPTIONS TO DETERMINE
7.1 If the Premises or a substantial part of them (whether or not directly
affecting the Premises) is destroyed or damaged by an Insured Risk so
as to make continued use of the Premises impracticable, the Landlord
may terminate this Lease by giving to the Tenant notice to that effect
at any time within 12 months after the damage has occurred.
7.2 If for any reason beyond the control of the Landlord it proves
impracticable to commence rebuilding or reinstatement of the Premises
and substantial rebuilding or reinstatement has not commenced within
two years of the damage by an Insured Risk, either party may terminate
this Lease by giving to the other notice to that effect.
7.3 The termination of this Lease under this paragraph 7 shall not affect
any liability which has accrued at any time before the time of
termination.
8 RETENTION OF INSURANCE PROCEEDS
On the termination of this Lease under paragraph 7, or if this Lease is
terminated by the operation of the doctrine of frustration, the
Landlord shall be entitled to retain the proceeds of insurance for its
exclusive benefit.
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<PAGE> 57
SCHEDULE 4
GUARANTEE PROVISIONS
PART 1
FORM OF GUARANTEE ON ASSIGNMENT
The operative provisions of the guarantee to be given by a Guarantor on an
assignment of this Lease are to be the same as those which appear in clause 7
(numbered appropriately), except that the paragraph corresponding to clause
7.1.4 is to be replaced by the following paragraph:
"For the purposes of this guarantee, references to the "Tenant" are to the
assignee of this Lease in relation to whom the guarantee to the Landlord is
given, and none other."
PART 2
FORM OF AUTHORISED GUARANTEE AGREEMENT
The operative provisions of the authorised guarantee agreement to be given by a
tenant on an assignment of this Lease are to be the same as those which appear
in clause 7 (renumbered appropriately), with the following exceptions:
1 there is to be no provision corresponding to clause 7.1.3;
2 the paragraph corresponding to clause 7.1.4 is to be replaced by the
following paragraph:
"For the purposes of this guarantee, references to the "Tenant" are to
the assignee of this Lease in relation to whom the guarantee to the
Landlord is given, and none other.";
3 in the provision corresponding to clause 7.3.1, the words in the first
line of the clause ".....by re-entry by the Landlord or......" are to
be omitted.
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<PAGE> 58
Executed under the Common Seal of )
PDFM LIMITED in the presence of: )
)
J. B. Hyslop
-------------------------------
Authorised Signatory
C.K. Hawkins
-------------------------------
Authorised Signatory
53
<PAGE> 1
EXHIBIT 13.1
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with Management's Discussion and Analysis and the Consolidated
Financial Statements and accompanying Notes thereto appearing elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996(1) 1995(1) 1994(1) 1993(1)
---- ---- ---- ---- ----
- --------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net revenue $814,476 $554,227 $337,006 $207,022 $149,225
Income from operations 87,699 42,436 26,544 17,038 11,758
Income before income taxes 85,578 22,897 25,361 16,045 9,037
Net income available for common
shareholders 55,316 7,097 15,349 10,271 4,740
Basic net income per share 0.76 0.11 0.25 0.18 0.10
Diluted net income per share $ 0.75 $ 0.10 $ 0.24 $ 0.18 $ 0.10
Weighted average shares
outstanding(2):
Basic 72,394 67,377 61,995 56,961 48,514
Diluted 73,931 70,013 63,770 57,345 49,024
<CAPTION>
As of December 31,
------------------
1997 1996(1) 1995(1) 1994(1) 1993(1)
---- ---- ---- ---- ----
- --------------------------------------------------------------------------------------------
(In thousands, except employees)
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 78,007 $ 68,730 $ 85,693 $ 50,936 $ 17,241
Working capital 164,858 99,310 72,575 47,642 18,366
Total assets 798,898 532,577 343,762 202,195 129,593
Long-term debt including current
portion 185,231 182,463 52,026 21,954 21,420
Shareholders' equity $387,105 $150,545 $165,182 $ 89,015 $ 41,979
Employees 10,858 7,513 4,435 2,650 1,953
</TABLE>
(1) Prior to the Company's November 29, 1996 share exchange with Innovex
Limited (Innovex), Innovex had a fiscal year end of March 31 and the
Company had (and continues to have) a fiscal year end of December 31.
As a result, the pooled data presented above for 1993 through 1995
include Innovex's March 31 fiscal year data in combination with the
Company's December 31 fiscal year data. In connection with the share
exchange, Innovex changed its fiscal year end to December 31.
Accordingly, the pooled data presented above for 1996 include both
Innovex's and the Company's data on a December 31 year end basis.
Because of the difference between Innovex's fiscal year end in 1995
compared with 1996, Innovex's quarter ended March 31, 1996 data are
included in the Company's pooled data for both 1995 and 1996.
(2) Restated to reflect the two-for-one stock splits of the Company's
Common Stock effected as a 100% stock dividend in November 1995 and
December 1997.
22
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
Quintiles Transnational Corp. ("Quintiles" or "the Company") is a market leader
in providing full-service contract research, sales, marketing and healthcare
policy consulting and health information management services to the global
pharmaceutical, biotechnology, medical device and healthcare industries.
During 1997, the Company completed several strategic acquisitions that
complemented its existing operations and expanded its array of services.
Specifically:
On February 27, 1997, the Company acquired Debra Chapman Consulting Group Pty
Limited and the Medical Alliances Australia Pty Limited group of companies
(collectively "DCCG/MAA") located in Sydney and Melbourne, Australia. The
Company purchased 100% of the DCCG/MAA group of companies' outstanding stock for
an undisclosed amount of cash.
On June 2, 1997, the Company acquired Butler Communications Inc. ("Butler") and
its affiliated companies, including Butler Clinical Recruitment, Inc., which
specialize in communication programs to accelerate the recruitment of patients
for clinical trials. The Company acquired the Butler businesses in exchange for
428,610 shares of the Company's Common Stock. In addition, the Company assumed
approximately $2.8 million in existing Butler debt. The acquisition of Butler
was accounted for as a pooling of interests, and all consolidated financial data
for periods subsequent to January 1, 1997 have been restated to include the
results of the pooled company. The financial data of the pooled companies prior
to January 1, 1997 were not materially different from that previously reported
by the Company, and thus have not been restated.
On June 11, 1997, the Company acquired Action International Marketing Services
Limited and its subsidiaries, including Medical Action Communications Limited
(collectively "MAC"), a leading international strategic medical communications
consultancy. The Company acquired MAC in exchange for 1,131,394 shares and
granted stock options exercisable for an additional 125,700 shares of the
Company's Common Stock. The acquisition was accounted for as a pooling of
interests, and as such, all historical financial data have been restated to
include the historical financial data of MAC.
On June 21, 1997, the Company acquired the operating assets of Pharmacology Data
Management Corporation ("PDMC"), a software services company, for an undisclosed
amount of cash.
On July 2, 1997, the Company acquired CerebroVascular Advances, Inc. ("CVA"), a
leader in stroke clinical trials. The Company acquired CVA in exchange for
467,936 shares and stock options exercisable for an additional 34,038 shares of
the Company's Common Stock. The acquisition was accounted for as a pooling of
interests, and accordingly, the Company restated all historical financial data
to include the historical financial data of CVA.
On August 29, 1997, the Company acquired Intelligent Imaging, Inc. ("Intelligent
Imaging"), an information management company specializing in providing digital
medical imaging services for clinical trials and the healthcare industry, in
exchange for 171,880 shares of the Company's Common Stock. The acquisition of
Intelligent Imaging was accounted for as a pooling of interests, and all
consolidated financial data for periods subsequent to January 1, 1997 have been
restated to include the results of the pooled company. The financial data of the
pooled companies prior to January 1, 1997 were not materially different from
that previously reported by the Company, and thus have not been restated.
On August 29, 1997, the Company acquired Clindepharm International (Pty) Limited
("Clindepharm"), South Africa's leading contract research organization, in
exchange for 477,966 shares of the Company's Common Stock. The acquisition was
accounted for as a pooling of interests, and as such, all historical financial
data have been restated to include the historical financial data of Clindepharm
since its inception in 1996.
On August 29, 1997, the Company acquired Rapid Deployment Services and its
affiliated companies ("RDS"), South Africa's leading contract sales
organization, in exchange for 121,668 shares of the Company's Common Stock. The
acquisition of RDS was accounted for as a pooling of interests, and all
consolidated financial data for periods subsequent to January 1, 1997 have been
restated to include the results of the pooled company. The financial data of
the pooled companies prior to January 1, 1997 were not materially diff-
23
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
erent from that previously reported by the Company, and thus have not been
restated.
In addition, on September 10, 1997, the Company officially opened its 171,000 -
square foot clinical trials material packaging and distribution facility in
Bathgate, Scotland. The facility, which includes a data management center,
opened with a staff of about 115, and it is expected to eventually employ
approximately 300 people.
Also, on December 1, 1997, the Company effected a two-for-one split of the
Company's Common Stock in the form of a 100% stock dividend. All references to
number of shares and per share amounts have been restated to reflect the stock
split.
Contract Revenue
Most of the Company's contracts are fixed price, with some variable components,
and range in duration from a few months to several years. Generally, a portion
of the contract fee is paid at the time the project is initiated with
performance-based installments payable over the contract duration. Most
contracts are terminable upon 15-90 days' notice by the customer, and typically
provide for termination or winding down fees. Also, some contracts call for the
customer to reimburse the Company at cost for certain items such as investigator
payments and travel. The Company recognizes net revenue from its contracts,
which excludes reimbursed costs, on a percentage-of-completion or per diem basis
as work is performed. The Company considers net revenue its primary measure of
revenue growth.
The Company reports backlog based on anticipated net revenue from uncompleted
projects which have been authorized by the customer through a written contract
or otherwise. Using this method of reporting backlog, at December 31, 1997, 1996
and 1995 the backlog was approximately $1.06 billion, $708 million and $415
million, respectively. The Company believes that backlog may not be a consistent
indicator of future results because backlog can be affected by a number of
factors, including the variable size and duration of projects, many of which are
performed over several years, loss or significant delay of contracts, or a
change in the scope of a project during the course of a study.
Results of Operations
Year Ended December 31, 1997 Compared with
Year Ended December 31, 1996
Net revenue for the year ended December 31, 1997 was $814.5 million, an increase
of $260.2 million or 47.0% over fiscal 1996 net revenue of $554.2 million.
Growth occurred across each of the Company's three geographic regions. Factors
contributing to the growth included an increase of contract service offerings,
the provision of increased services rendered under existing contracts and the
initiation of services under contracts awarded subsequent to January 1, 1997.
Direct costs, which include compensation and related fringe benefits for
billable employees and other expenses directly related to contracts, were $421.9
million or 51.8% of 1997 net revenue versus $279.0 million or 50.3% of 1996 net
revenue. The increase in direct costs as a percentage of net revenue was
primarily attributable to the increase in net revenue generated from contract
sales and marketing services, which incur a higher level of direct costs (but
lower general and administrative expenses) relative to net revenue than contract
research services.
General and administrative expenses, which include compensation and fringe
benefits for administrative employees, non-billable travel, professional
services, advertising, computer and facility expenses, were $267.5 million or
32.8% of 1997 net revenue versus $192.2 million or 34.7% of 1996 net revenue.
The $75.3 million increase in general and administrative expenses was primarily
due to an increase in personnel, facilities and locations and outside services
resulting from the Company's growth.
Depreciation and amortization were $37.5 million or 4.6% of 1997 net revenue
versus $25.2 million or 4.5% of 1996 net revenue.
Income from operations was $87.7 million or 10.8% of 1997 net revenue versus
$42.4 million or 7.7% of 1996 net revenue. Excluding non-recurring
24
<PAGE> 4
costs incurred in 1996 as described below, income from operations was $57.9
million or 10.4% of net revenue.
Other expense decreased to $2.1 million in 1997 from $19.5 million in 1996.
Excluding acquisition costs and non-recurring transaction costs, other income
was $100,000 in 1997 and other expense was $2.4 million in 1996. The $2.5
million change was primarily due to decreases in net interest expense of
approximately $2.3 million and other expense of approximately $100,000.
The effective tax rate for 1997 was 35.4% versus a 61.2% rate in 1996. Excluding
non-recurring transaction and restructuring costs which were not deductible for
tax purposes, the 1996 effective tax rate would have been 33.9%. Since the
Company conducts operations on a global basis, its effective tax rate may vary.
See "--Taxes."
Year Ended December 31, 1998 Compared with
Year Ended December 31, 1995
Prior to the Company's November 29, 1996 share exchange with Innovex Limited
("Innovex"), Innovex had a fiscal year end of March 31, and the Company had (and
continues to have) a fiscal year end of December 31. As a result, the pooled
data prior to January 1, 1996 includes Innovex's March 31 fiscal year data in
combination with the Company's December 31 fiscal year data. In connection with
the share exchange, Innovex changed its fiscal year end to December 31.
Accordingly, the pooled data presented for 1996 include both Innovex's and the
Company's data on a December 31 year end basis. Because of the difference
between Innovex's fiscal year end in 1995 compared with 1996, Innovex's quarter
ended March 31, 1996 data are included in the Company's pooled data for both
1995 and 1996.
Net revenue for the year ended December 31, 1996 was $554.2 million, an increase
of $217.2 million or 64.5% over fiscal 1995 net revenue of $337.0 million. In
general, growth occurred across each of the Company's three geographic regions
and within each contract service sector. Factors contributing to both the
regional and service growth included the provision of increased services
rendered under existing contracts, the initiation of services under contracts
awarded subsequent to January 1, 1996 and the Company's acquisitions (excluding
BRI International, Inc. ("BRI") and Innovex) completed during 1996 and 1995
which contributed approximately $44.8 million in 1996 versus $11.7 million in
1995. Without these acquisitions, the Company's 1996 net revenue increased by
$184.1 million or 56.6% over comparable 1995 net revenue. One customer accounted
for 11.5% of the Company's 1996 net revenue.
Direct costs, which include compensation and related fringe benefits for
billable employees and other expenses directly related to contracts, were $279.0
million or 50.3% of 1996 net revenue versus $171.6 million or 50.9% of 1995 net
revenue. The decrease in direct costs as a percentage of net revenue was
primarily attributable to efficiency realized through the use of information
technology in the Company's provision of services related to global, long-term
contracts, offset by increased costs attributable to the increase in net revenue
generated from contract sales and marketing services, which incur a higher level
of direct costs (but lower general and administrative expenses) relative to net
revenue than contract research services.
General and administrative expenses, which include compensation and fringe
benefits for administrative employees, non-billable travel, professional
services, advertising, computer and facility expenses, were $192.2 million or
34.7% of 1996 net revenue versus $116.9 million or 34.7% of 1995 net revenue.
The $75.2 million increase in general and administrative expenses was primarily
due to an increase in personnel, facilities and locations, business development
and marketing activities, and outside services resulting from the Company's
growth.
Depreciation and amortization were $25.2 million or 4.5% of 1996 net revenue
versus $17.2 million or 5.1% of 1995 net revenue.
Income from operations was $42.4 million or 7.7% of 1996 net revenue versus
$26.5 million or 7.9% of 1995 net revenue. Net of non-recurring costs, income
from operations was $57.9 million or 10.4% of 1996 net revenue versus $31.2
million or 9.3% of 1995 net revenue. During the quarter ended March 31, 1996,
Innovex recognized two non-recurring charges: a $2.4 million expense for an
Innovex internal reorganization and a related $2.3 mil-
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<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
lion special pension contribution. Accordingly, the Company's pooled,
consolidated financial results include such charges, totaling $4.7 million, in
both the fiscal years ended December 31, 1996 and 1995. In the fourth quarter of
1996, the Company recognized approximately $10.7 million in non-recurring
restructuring costs related to the BRI and Innovex transactions.
Other expense increased to $19.5 million in 1996 from $1.2 million in 1995.
Other expense includes approximately $17.1 million of non-recurring transaction
costs for the year ended December 31, 1996, most of which were not deductible
for tax purposes. Net of such non-recurring transaction costs, other expense was
$2.4 million for 1996 and $1.2 million in 1995. This increase of approximately
$1.2 million was primarily due to an increase of interest and miscellaneous
expense of $5.8 million which was offset by an increase in interest income of
approximately $4.5 million.
The effective tax rate for 1996 was 61.2% versus a 36.6% rate in 1995. The
increase in the 1996 effective tax rate was primarily attributable to the
non-tax deductible, non-recurring transaction costs incurred and a portion of
the non-recurring costs relating to the Innovex internal reorganization prior to
its pooling of interests with the Company. The lack of tax relief for the
Innovex internal reorganization costs was reflected in both the effective tax
rates for 1996 and 1995. The effective tax rate for 1996 was 33.9% versus a
34.6% rate in 1995 excluding the non-recurring costs. Since the Company conducts
operations on a global basis, its effective tax rate may vary. See "-- Taxes."
Liquidity and Capital Resources
Cash flows generated from operations were $77.4 million in 1997 versus $32.7
million and $35.8 million in 1996 and 1995, respectively. Cash flows from
investing activities in 1997 were $150.0 million, versus $144.9 million and
$38.3 million in 1996 and 1995, respectively. The change in the amount of cash
from investing activities from 1995 to 1996 was primarily due to the investment
of the Company's net proceeds from the May 1996 private placement of its 4.25%
Convertible Subordinated Notes due May 31, 2000. Capital asset purchases
required $78.7 million in 1997 versus $39.7 million and $26.0 million in 1996
and 1995, respectively. Capital asset expenditures in 1997 and 1996 included
(pound)15.8 million (approximately $26.5 million) and (pound)2.7 million
(approximately $5.0 million), respectively, related to the Company's purchase of
land and construction of a facility in Bathgate, Scotland. The remaining capital
expenditures were predominantly incurred in connection with the expansion of
existing operations, the enhancement of information technology capabilities and
the opening of new offices.
Total working capital was $164.9 million at December 31, 1997 compared to $99.3
million at December 31, 1996. Including long-term cash investments of $69.1
million and $25.1 million at December 31, 1997 and 1996, respectively, in total
working capital, the increase was $109.6 million. Total accounts receivable and
unbilled services increased 14.8% to $210.4 million at December 31, 1997 from
$183.2 million at December 31, 1996, as a result of the growth in net revenue.
The number of days revenue outstanding in accounts receivable and unbilled
services, net of unearned income, was 42 and 48 days at December 31, 1997 and
December 31, 1996, respectively.
During 1995, the Company acquired a drug development facility in Edinburgh,
Scotland. Related to this acquisition, the Company entered into a purchase
commitment valued at (pound)13.0 million (approximately $21.0 million) with
payment due in December 1999. The Company has hedged this commitment by
purchasing forward contracts. The Company's forward contracts mature on December
29, 1999, and as of December 31, 1997, the Company had committed to purchasing
approximately (pound)1.5 million (approximately $2.3 million) under such
contracts. The Company is obligated to purchase up to an additional (pound)5.9
million through December 28, 1999 in varying amounts as the daily
dollar-to-pound exchange rate ranges between $1.5499 and $1.6800.
The Company has available to it a (pound)15.0 million unsecured line of credit
with a U.K. bank and a (pound)5.0 million unsecured line of credit with a
second U.K. bank. At December 31, 1997, the Company had(pound)13.8 million
available under these credit agreements.
On March 12, 1997, the Company completed a public offering of
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<PAGE> 6
11,040,000 shares of its Common Stock at a price of $31.4375 per share. Of the
11,040,000 shares sold, 2,830,000 shares were sold by the Company and 8,210,000
shares were sold by selling shareholders. Net proceeds to the Company amounted
to approximately $84.3 million.
All foreign currency denominated amounts due, subsequent to December 31, 1997,
have been translated using the Friday, December 26, 1997 foreign exchange rates
as published in the December 29, 1997 edition of the Wall Street Journal.
Based on its current operating plan, the Company believes that its available
cash and cash equivalents, together with future cash flows from operations and
borrowings under its line of credit agreements will be sufficient to meet its
foreseeable cash needs in connection with its operations. As part of its
business strategy, the Company reviews many acquisition candidates in the
ordinary course of business, and in addition to acquisitions already made, the
Company is continually evaluating new acquisition and expansion possibilities.
The Company may from time to time seek to obtain debt or equity financing in its
ordinary course of business or to facilitate possible acquisitions or expansion.
Foreign Currency
Approximately 50.0%, 57.0% and 60.1% of the Company's net revenue for the years
ended December 31, 1997, 1996, and 1995, respectively, were derived from the
Company's operations outside the United States. The Company's financial
statements are denominated in U.S. dollars, and accordingly, changes in the
exchange rate between foreign currencies and the U.S. dollar will affect the
translation of such subsidiaries' financial results into U.S. dollars for
purposes of reporting the Company's consolidated financial results.
The Company may be subject to foreign currency transaction risk when the
Company's service contracts are denominated in a currency other than the
currency in which the Company earns fees or incurs expenses related to such
contracts. The Company limits its foreign currency transaction risk through
exchange rate fluctuation provisions stated in its contracts with customers, or
the Company may hedge its transaction risk with foreign currency exchange
contracts or options. The Company recognizes changes in value in income only
when foreign currency exchange contracts or options are settled or exercised,
respectively. There were several foreign exchange contracts relating to service
contracts open at December 31, 1997, all of which are immaterial to the Company.
Taxes
Since the Company conducts operations on a global basis, the Company's effective
tax rate has depended and will continue to depend on the amount of profits in
locations with varying tax rates. The Company's results of operations will be
impacted by changes in the tax rates of the various jurisdictions and by changes
in any applicable tax treaties. In particular, as the portion of the Company's
non-U.S. business increases, the Company's effective tax rate may vary
significantly from period to period. The Company's effective tax rate may also
depend upon the extent to which the Company is allowed (and is able to use under
applicable limitations) U. S. foreign tax credits in respect of taxes paid on
its foreign operations.
Inflation
The Company believes the effects of inflation generally do not have a material
adverse impact on its operations or financial condition.
Impact of Year 2000
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or data corruption causing disruptions of operations, including, among
other things, a temporary inability to process transactions or engage in similar
business activities.
The Company's computing infrastructure is based upon industry standard systems.
The Company is not dependent on large legacy systems and
27
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
does not use mainframes. Many of the specially developed systems the Company
uses have been developed within the past few years and are Year 2000 compliant.
The Company has appointed a Year 2000 Project Team to conduct an assessment of
the Company's operations worldwide from an internal, supplier and customer
perspective. The assessment, which is currently in progress, addresses all
computer systems, applications and any other systems that may be vulnerable to
the Year 2000 Issue. As part of the assessment, the Company is preparing
detailed plans to address Year 2000 issues. The Company is utilizing both
internal and external resources to implement the plans. The Company currently
anticipates addressing all business critical systems during 1998 and will
address follow-up issues and all remaining systems during 1999. While the
Company currently does not believe that the costs associated with addressing
Year 2000 Issues will be material to the Company's financial statements,
business or operations, the Company's assessment of Year 2000 Issues is ongoing
and there can be no assurance that Year 2000 Issues or the costs of addressing
them will not have a material impact on the Company's financial statements,
business or operations.
Recent Events
On February 2, 1998, the Company acquired Pharma Networks N.V. ("Pharma"), a
leading contract sales organization in Belgium. The Company acquired Pharma in
exchange for 132,000 shares of the Company's Common Stock. The acquisition of
Pharma will be accounted for as a pooling of interests.
On February 4, 1998, the Company acquired Technology Assessment Group ("TAG"),
an international health outcomes assessment firm that specializes in patient
registries and in evaluating the economic, quality-of-life and clinical effects
of drug therapies and disease management programs. The Company acquired TAG in
exchange for 460,366 shares of the Company's Common Stock. The acquisition of
TAG will be accounted for as a pooling of interests.
On February 26, 1998, the Company acquired T2A S.A. ("T2A"), a leading French
contract sales organization. The Company acquired T2A in exchange for 311,899
shares of the Company's Common Stock. The acquisition of T2A will be accounted
for as a pooling of interests.
On February 27, 1998, the Company acquired More Biomedical Contract Research
Organization Ltd. ("More Biomedical"), a contract research organization based in
Taiwan. The Company acquired More Biomedical in exchange for 16, 600 shares of
the Company's Common Stock. The acquisition will be accounted for as a pooling
of interests.
Recently Issued Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement No. 130,
"Reporting Comprehensive Income" which is effective for fiscal years beginning
after December 15, 1997. Statement No. 130 establishes standards for reporting
and displaying comprehensive income and its components in financial statements.
The Company will adopt Statement No. 130 in the first quarter 1998 and will
provide the financial statement disclosures as required. The application of the
new rules will not have an impact on the Company's financial position or results
from operations.
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information" which is
effective for fiscal years beginning after December 15, 1997. Statement No. 131
changes the way public companies report segment information in annual financial
statements and also requires those companies to report selected segment
information in interim financial statements to shareholders. Statement No. 131
also establishes standards for related disclosures about products and services,
geographic areas, and major customers. The Company will adopt Statement No. 131
in 1998, which may result in additional disclosures. The application of the new
rules will not have an impact on the Company's financial position or results
from operations.
28
<PAGE> 8
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net revenue.................................... $814,476 $554,227 $337,006
Costs and expenses:
Direct....................................... 421,855 278,981 171,571
General and administrative................... 267,463 192,184 116,948
Depreciation and amortization................ 37,459 25,195 17,241
Non-recurring costs:
Restructuring............................. -- 13,102 2,373
Special pension contribution.............. -- 2,329 2,329
-------- -------- --------
726,777 511,791 310,462
-------- --------
Income from operations......................... 87,699 42,436 26,544
Other income (expense):
Interest income.............................. 8,434 7,089 2,548
Interest expense............................. (8,566) (9,526) (3,765)
Non-recurring transaction costs.............. -- (17,118) --
Other........................................ (1,989) 16 34
-------- -------- --------
(2,121) (19,539) (1,183)
-------- -------- --------
Income before income taxes..................... 85,578 22,897 25,361
Income taxes................................... 30,262 14,015 9,293
-------- -------- --------
Net income..................................... 55,316 8,882 16,068
Non-equity dividend............................ -- (1,785) (719)
-------- -------- --------
Net income available for common shareholders... $ 55,316 $ 7,097 $ 15,349
======== ======== ========
Basic net income per share $ 0.76 $ 0.11 $ 0.25
Diluted net income per share $ 0.75 $ 0.10 $ 0.24
Shares used in computing net income per share:
Basic 72,394 67,377 61,995
Diluted 73,931 70,013 63,770
</TABLE>
SEE ACCOMPANYING NOTES.
29
<PAGE> 9
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 78,007 $ 68,730
Accounts receivable and unbilled services ........ 210,444 183,288
Investments ...................................... 44,372 37,623
Prepaid expenses ................................. 22,261 9,956
Other current assets ............................. 22,596 2,912
-------- --------
Total current assets ..................... 377,680 302,509
Property and equipment:
Land, buildings and leasehold improvements ....... 82,350 50,187
Equipment and software ........................... 115,663 68,708
Furniture and fixtures ........................... 28,733 31,275
Motor vehicles ................................... 39,105 30,353
-------- --------
265,851 180,523
Less accumulated depreciation .................... 80,479 55,289
-------- --------
185,372 125,234
Intangibles and other assets:
Intangibles ...................................... 71,976 68,595
Investments ...................................... 69,089 25,083
Deferred income taxes ............................ 68,651 --
Deposits and other assets ........................ 26,130 11,156
-------- --------
235,846 104,834
-------- --------
Total assets ............................. $798,898 $532,577
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
30
<PAGE> 10
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1996
(IN THOUSANDS)
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Lines of credit ....................................... $ 10,335 $ 9,048
Accounts payable ...................................... 35,207 36,074
Accrued expenses ...................................... 60,852 54,392
Unearned income ....................................... 85,327 78,962
Income taxes payable .................................. -- 4,978
Current portion of obligations held under capital
leases ............................................. 14,844 11,816
Current portion of long-term debt ..................... 23 1,897
Other current liabilities ............................. 6,234 6,032
--------- ---------
Total current liabilities ..................... 212,822 203,199
Long-term liabilities:
Obligations held under capital leases, less current
portion ............................................ 8,164 5,465
Long-term debt and obligation, less current portion ... 162,200 163,285
Deferred income taxes ................................. 25,548 4,747
Other liabilities ..................................... 3,059 5,336
--------- ---------
198,971 178,833
--------- ---------
Total liabilities ............................. 411,793 382,032
Commitments and contingencies
Shareholders' Equity:
Preferred stock, none issued and outstanding .......... -- --
Common Stock and additional paid-in capital, 73,853,867
and 68,377,220 shares issued and outstanding in 1997
and 1996, respectively ............................. 335,312 139,710
Retained earnings ..................................... 60,008 11,513
Other equity .......................................... (8,215) (678)
--------- ---------
Total shareholders' equity .................... 387,105 150,545
--------- ---------
Total liabilities and shareholders' equity .... $ 798,898 $ 532,577
========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
31
<PAGE> 11
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ........................................... $ 55,316 $ 8,882 $ 16,068
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization ...................... 37,459 25,812 17,241
Non-recurring transaction costs .................... -- 17,118 --
Net loss (gain) on sale of property and equipment .. 672 (134) (172)
Provision for deferred income tax expense .......... 10,002 731 1,904
Change in operating assets and liabilities:
Accounts receivable and unbilled services ........ (28,718) (68,525) (36,201)
Prepaid expenses and other assets ................ (15,924) (11,389) (838)
Accounts payable and accrued expenses ............ 10,431 23,682 17,299
Unearned income .................................. 738 42,460 20,013
Income taxes payable and other current liabilities 7,945 3,491 547
Change in fiscal year of pooled entity ............. (581) (9,378) --
Other .............................................. 71 (27) (25)
--------- --------- ---------
Net cash provided by operating activities ............ 77,411 32,723 35,836
Investing activities
Proceeds from disposition of property and equipment 4,254 1,434 4,311
Purchase of investments held-to-maturity ........... -- (95,939) --
Maturities of investments held-to-maturity ......... 35,579 43,345 --
Purchase of investments available-for-sale ......... (137,573) (19,003) --
Proceeds from sale of investments available-for-sale 51,246 8,936 --
Purchase of other investments ...................... (12,011) -- --
Acquisition of property and equipment .............. (78,693) (39,744) (25,964)
Acquisition of businesses, net of cash acquired .... (7,130) (35,109) (16,571)
Payment of non-recurring transaction costs ......... (5,648) (11,440) --
Change in fiscal year of pooled entity ............. (17) 2,606 --
Other .............................................. -- -- (108)
--------- --------- ---------
Net cash used in investing activities ................ $(149,993) $(144,914) $ (38,332)
</TABLE>
32
<PAGE> 12
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1997 1996 1995
-------------------------------------
<S> <C> <C> <C>
Financing activities
Increase in lines of credit, net ......................... $ 513 $ 2,570 $ 3,917
Proceeds from issuance of debt ........................... -- 139,650 568
Repayment of debt ........................................ (7,727) (56,792) (1,371)
Principal payments on capital lease obligations .......... (16,470) (9,516) (6,621)
Issuance of common stock ................................. 108,834 3,678 56,746
Issuance of debt for capitalization of pooled entity ..... -- 45,197 --
Recapitalization of pooled entity ........................ -- (29,230) --
Non-equity dividend ...................................... -- (1,756) (677)
Dividend paid by pooled entity ........................... (1,632) -- (9,162)
Change in fiscal year of pooled entity ................... 58 1,399 --
Other .................................................... 64 (249) (6,047)
--------- --------- ---------
Net cash provided by financing activities .................. 83,640 94,951 37,353
Effect of foreign currency exchange rate changes on cash ... (1,781) 277 (100)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 9,277 (16,963) 34,757
Cash and cash equivalents at beginning of year 68,730 85,693 50,936
--------- --------- ---------
Cash and cash equivalents at end of year $ 78,007 $ 68,730 $ 85,693
========= ========= =========
Supplemental Cash Flow Information
Interest paid $ 8,909 $ 9,468 $ 2,660
Income taxes paid 16,374 12,781 9,819
Non-cash Investing and Financing Activities
Capitalized leases 22,688 12,979 11,774
Equity impact of mergers and acquisitions 1,134 (23,253) 11,803
Equity impact from exercise of non-qualified stock options 24,049 2,920 --
Tax effect of pooled transactions $ 62,700 $ -- $ --
</TABLE>
SEE ACCOMPANYING NOTES.
33
<PAGE> 13
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
EMPLOYEE
STOCK
OWNERSHIP
ADDITIONAL PLAN LOAN CURRENCY
COMMON PAID-IN RETAINED GUARANTEE TRANSLATION
STOCK CAPITAL EARNINGS & OTHER ADJUSTMENTS TOTAL
----- ------- -------- ------- ----------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 ........ $ 209 $ 63,138 $ 26,294 $ (1,958) $ 1,332 $ 89,015
Issuance of common stock .......... 10 56,893 -- -- -- 56,903
Principal payments on ESOP
loan ............................ -- -- -- 401 -- 401
Common stock issued for
acquisitions .................... 4 11,799 31 -- -- 11,834
Reduction of liability under
stock option plan, net of
tax ............................. -- 693 -- -- -- 693
Dividends paid by pooled
entity .......................... -- -- (9,162) -- -- (9,162)
Non-equity dividend ............... -- -- (719) -- -- (719)
Two-for-one stock split ........... 107 (107) -- -- -- --
Other equity transactions ......... -- (135) -- -- 284 149
Net income ........................ -- -- 16,068 -- -- 16,068
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1995 ........ 330 132,281 32,512 (1,557) 1,616 165,182
Common stock issued for
acquisitions .................... 3 516 608 -- -- 1,127
Issuance of common stock .......... 9 3,838 -- -- -- 3,847
Principal payments on ESOP
loan ............................ -- -- -- 420 -- 420
Effect due to change in fiscal
year of pooled company .......... -- -- 324 -- -- 324
Recapitalization of pooled
entity .......................... -- (202) (29,028) -- -- (29,230)
Tax benefit from the exercise
of non-qualified stock
options ......................... -- 2,920 -- -- -- 2,920
Non-equity dividend ............... -- -- (1,785) -- -- (1,785)
Other equity transactions ......... -- 15 -- 45 (1,202) (1,142)
Net income ........................ -- -- 8,882 -- -- 8,882
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1996 ........ 342 139,368 11,513 (1,092) 414 150,545
Issuance of common stock .......... 24 112,741 -- -- -- 112,765
Principal payments on ESOP loan ... -- -- -- 536 -- 536
Common stock issued for
acquisitions ................... 4 2 (1,414) -- -- (1,408)
Effect due to change in fiscal year
of pooled entity ................ -- -- (3,775) -- 117 (3,658)
Two-for-one stock split ........... 369 (369) -- -- -- 0
Tax effect of pooling of interests -- 62,700 -- -- -- 62,700
Tax benefit from the exercise of
non-qualified stock options .... -- 20,118 -- -- -- 20,118
Dividend paid by pooled entity ... -- -- (1,632) -- -- (1,632)
Other equity transactions ......... -- 13 -- (104) (8,086) (8,177)
Net income ........................ -- -- 55,316 -- -- 55,316
--------- --------- --------- --------- --------- ---------
Balance, December 31, 1997 ........ $ 739 $ 334,573 $ 60,008 $ (660) $ (7,555) $ 387,105
========= ========= ========= ========= ========= =========
</TABLE>
SEE ACCOMPANYING NOTES.
34
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
The Company is a leader in providing full-service contract research,
sales, marketing and healthcare policy consulting and health information
management services to the worldwide pharmaceutical, biotechnology, medical
device and healthcare industries.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
and operations of the Company and its subsidiaries. All material intercompany
accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
FOREIGN CURRENCIES
Assets and liabilities recorded in foreign currencies on the books of
foreign subsidiaries are translated at the exchange rate on the balance sheet
date. Revenues, costs and expenses are recorded at average rates of exchange
during the year. Translation adjustments resulting from this process are charged
or credited to equity. Gains and losses on foreign currency transactions are
included in other income (expense).
REVENUE RECOGNITION
The Company recognizes net revenue from its contracts on a
percentage-of-completion or per diem basis as work is performed. The Company's
exposure to credit loss is equal to the outstanding accounts receivable and
unbilled services balance. Although the Company does not require collateral for
unpaid balances, credit losses have consistently been within management's
expectations. Certain contracts contain provisions for price redetermination for
cost overruns. Such redetermined amounts are included in service revenue when
realization is assured and the amounts can be reasonably determined. In the
period in which it is determined that a loss will result from the performance of
a contract, the entire amount of the estimated ultimate loss is charged against
income. One customer accounted for 11.5% of consolidated net revenue in 1996.
UNBILLED SERVICES AND UNEARNED INCOME
In general, prerequisites for billings are established by contractual
provisions including predetermined payment schedules, the achievement of
contract milestones or submission of appropriate billing detail. Unbilled
services arise when services have been rendered but clients have not been
billed. Similarly, unearned income represents prebillings for services that have
not yet been rendered.
35
<PAGE> 15
NOTES (continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH EQUIVALENTS AND INVESTMENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The Company does not
report in the accompanying balance sheets cash held for clients for investigator
payments in the amount of $9.5 million and $4.6 million at December 31, 1997 and
1996, respectively, that pursuant to agreements with these clients, remains the
property of the clients.
The Company's investments in debt and marketable equity securities are
classified as held-to-maturity and available-for-sale. Investments classified as
held-to-maturity are recorded at amortized cost. Investments classified as
available-for-sale are measured at market value and net unrealized gains and
losses are recorded as a component of stockholders' equity until realized. In
addition, the Company has $13.1 million and $1.5 million in deposits and other
assets at December 31, 1997 and 1996, respectively, that represents investments
in equity securities for which there are not readily available market values.
Any gains or losses on sales of investments are computed by specific
identification.
PROPERTY AND EQUIPMENT
Property and equipment are carried at historical cost and are
depreciated using the straight-line method over the shorter of the asset's
estimated useful life or the lease term ranging from three to 50 years.
INTANGIBLE ASSETS
Intangibles consist principally of the excess cost over the fair value
of net assets acquired ("goodwill") and are being amortized on a straight-line
basis over periods not exceeding 40 years. Accumulated amortization totaled
$12.8 million and $10.5 million at December 31, 1997 and 1996, respectively.
The carrying values of intangible assets are reviewed if the facts and
circumstances suggest impairment. If this review indicates that carrying values
will not be recoverable, as determined based on undiscounted cash flows over the
remaining amortization period, the Company would reduce carrying values by the
estimated shortfall of discounted cash flows.
NET INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement No. 128, "Earnings per Share" which established new standards
for computing and presenting net income per share information. As required, the
Company adopted the provisions of Statement No. 128 in its 1997 financial
statements and has restated all prior year net income per share information.
Basic net income per share was determined by dividing net income available for
common shareholders by the weighted average number of common shares outstanding
during each year. Diluted net income per share reflects the potential dilution
that could occur assuming conversion or exercise of all convertible securities
and issued and unexercised stock options. A reconciliation of the net income
available for common shareholders and number of shares used in computing basic
and diluted net income per share is in Note 4.
INCOME TAXES
Income tax expense includes U.S. and international income taxes.
Certain items of income and expense are not reported in tax returns and
financial statements in the same year. The tax effects of these differences are
reported as deferred income taxes. Tax credits are accounted for as a reduction
of tax expense in the year in which the credits reduce taxes payable.
36
<PAGE> 16
RESEARCH AND DEVELOPMENT COSTS
Research and development costs relating principally to new software
applications and computer technology are charged to expense as incurred. These
expenses totaled $2.8 million, $2.3 million and $1.9 million in 1997, 1996 and
1995, respectively.
EMPLOYEE STOCK COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" APB 25 and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation", requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
FOREIGN CURRENCY HEDGING
The Company uses foreign exchange contracts and options to hedge the
risk of changes in foreign currency exchange rates associated with contracts in
which the expenses for providing services are incurred in one currency and paid
for by the client in another currency. The Company recognizes changes in value
in income only when contracts are settled or options are exercised. There were
several foreign exchange contracts relating to service contracts open at
December 31, 1997, all of which are immaterial to the Company.
RECLASSIFICATIONS
Certain amounts in the 1996 financial statements have been reclassified
to conform with the 1997 financial statement presentation. The reclassifications
had no effect on previously reported net income available to common
shareholders, shareholders' equity or net income per share.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, FASB issued Statement No. 130, "Reporting Comprehensive
Income" which is effective for fiscal years beginning after December 15, 1997.
Statement No. 130 establishes standards for reporting and displaying
comprehensive income and its components in financial statements. The Company
will adopt Statement No. 130 in the first quarter of 1998 and will provide the
financial statement disclosures as required. The application of the new rules
will not have an impact on the Company's financial position or results from
operations.
In June 1997, FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information" which is effective for fiscal
years beginning after December 15, 1997. Statement No. 131 changes the way
public companies report segment information in annual financial statements and
also requires those companies to report selected segment information in interim
financial statements to shareholders. Statement No. 131 also establishes
standards for related disclosures about products and services, geographic areas
and major customers. The Company will adopt Statement No. 131 in 1998, which may
result in additional disclosures. The application of the new rules will not have
an impact on the Company's financial position or results from operations.
37
<PAGE> 17
NOTES (continued)
2. SHAREHOLDERS' EQUITY
The Company is authorized to issue 25 million shares of preferred
stock, $.01 per share par value. At December 31, 1997, 200 million common shares
of $.01 par value were authorized.
In October 1997, the Board of Directors authorized a two-for-one split
of the Company's Common Stock in the form of a 100% stock dividend. A total of
36,920,627 shares of Common Stock were issued in connection with the split. The
stated par value of each share was not changed from $.01. A total of $369,000
was reclassified from additional paid in capital to Common Stock. All references
in the financial statements to number of shares, per share amounts, stock option
data and market prices of Common Stock have been restated to reflect the stock
split.
In March 1997, the Company completed a stock offering of 11,040,000
shares of its Common Stock. Of the shares sold, 2,830,000 shares were sold by
the Company and 8,210,000 shares by certain selling shareholders. The offering
provided the Company with approximately $84.3 million, net of expenses.
In April 1996, in anticipation of a planned initial public offering,
Innovex was recapitalized by the purchase of the entire issued share capital of
Innovex Holdings Limited (the former holding company of the Innovex Group) from
its shareholders in exchange for a combination of newly issued Ordinary Shares,
Preferred Ordinary Shares (the "Preferred Shares"), loan notes and cash. In
exchange for its holdings in Innovex Holdings Limited, the principal shareholder
received 67,994,225 newly issued Ordinary Shares of Innovex Limited,
approximately $26.0 million of loan notes and approximately $2.4 million of
cash. In exchange for their respective holdings, certain investors received
14,285,720 newly issued Preferred Shares, and certain members of management
received 4,637,080 Ordinary Shares. Pursuant to an investment agreement, Innovex
also issued 28,533,345 additional preferred shares and created and issued 11
million 7.5% preference shares (the "Preference Shares") and approximately $10.7
million of loan stock. In connection with the Preference Shares, the Company
paid $846,000 of non-equity dividends in 1996. Prior to the recapitalization,
Innovex paid a dividend of $9.2 million to the principal shareholder and made a
special pension contribution of $2.3 million. In connection with the Innovex
merger, the Company has paid $56.8 million of Innovex obligations.
3. MERGERS AND ACQUISITIONS
On June 11, 1997, the Company acquired 100% of the stock of MAC, a
leading international strategic medical communications consultancy, for
1,131,394 shares of the Company's Common Stock. On July 2, 1997, the Company
acquired CVA, a contract research organization that is a leader in stroke
clinical trials, through an exchange of 100% of CVA's stock for 467,936 shares
of the Company's Common Stock. On August 29, 1997, the Company acquired
Clindepharm in exchange for 477,966 shares of the Company's Common Stock. These
transactions were accounted for by the pooling of interests method.
The following is a summary of the net revenue and net income available
for common shareholders from the beginning of the year through the date of
combination for companies acquired in transactions accounted for as poolings of
interests in 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS) MAC CVA CLINDEPHARM OTHERS
-------------- --- --- ----------- ------
<S> <C> <C> <C> <C>
Net revenue....................... $5,733 $2,382 $3,437 $9,034
Net income available for common
shareholders.................... $1,013 $ 332 $1,062 $1,153
</TABLE>
On November 29, 1996, the Company acquired 100% of the outstanding
stock of Innovex, an international contract pharmaceutical organization based in
Marlow, U.K., for 18,428,478 shares of the Company's Common Stock and the
exchange of options to purchase 1,572,452 shares of the Company's Common Stock.
On November 22, 1996, the Company acquired BRI, a global contract research
organization, through an exchange of 100% of BRI's stock for 3,229,724 shares of
the Company's Common Stock. Related to the Innovex and BRI transactions, the
Company recognized approximately $17.1 million in non-recurring transaction
costs and approximately $10.7 million in non-recurring restructuring costs.
These transactions were accounted for by the pooling of interests method.
38
<PAGE> 18
On May 13, 1996, the Company acquired the operating assets of
Lewin-VHI, Inc., a healthcare consulting company, for approximately $30 million
in cash. The Company recorded approximately $20 million related to the excess
cost over the fair value of net assets acquired. The acquisition was accounted
for as a purchase and accordingly, the financial statements include the results
of operations of the business from the date of acquisition.
In addition to the above mergers and acquisitions, the Company has
completed other mergers and acquisitions all of which are immaterial to the
financial statements.
4. NET INCOME PER SHARE
The following table sets forth the computation of basic and diluted net
income per share (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
<S> <C> <C> <C>
Net income available for common shareholders:
Net income $ 55,316 $ 8,882 $ 16,068
Non-equity dividend -- (1,785) (719)
-------- -------- --------
Net income available for common shareholders -
basic and diluted net income per share $ 55,316 $ 7,097 $ 15,349
======== ======== ========
Weighted average shares:
Basic net income per share - weighted average shares 72,394 67,377 61,995
Effect of dilutive securities:
Stock options 1,537 2,636 1,775
-------- -------- --------
Diluted net income per share - adjusted weighted-average shares
and assumed conversions 73,931 70,013 63,770
======== ======== ========
Basic net income per share $ 0.76 $ 0.11 $ 0.25
======== ======== ========
Diluted net income per share $ 0.75 $ 0.10 $ 0.24
======== ======== ========
</TABLE>
Options to purchase 1.8 million shares of common stock with exercise
prices ranging between $35.25 and $41.375 per share were outstanding during 1997
but were not included in the computation of diluted net income per share because
the options' exercise price was greater than the average market price of the
common shares and, therefore, the effect would be antidilutive.
The conversion of the Company's 4.25% Convertible Subordinated Notes
("Notes") into approximately 3.5 million shares of common stock was not included
in the computation of diluted net income per share because the effect would be
antidilutive.
For additional disclosures regarding the outstanding stock options and
the Notes, see "Employee Benefit Plans" and "Credit Arrangements and
Obligations."
5. CREDIT ARRANGEMENTS AND OBLIGATIONS
On May 23, 1996, the Company completed a private placement of $143.75
million of 4.25% Convertible Subordinated Notes ("Notes") due May 31, 2000. Net
proceeds to the Company amounted to approximately $139.7 million. The Notes are
convertible into 3,474,322 shares of Common Stock, at the option of the holder,
at a conversion price of $41.37 per share, subject to adjustment under certain
circumstances, at any time after August 21, 1996. The Notes are redeemable, at
the option of the Company, beginning May 31, 1999. Interest is payable on the
notes semi-annually on May 31 and November 30 each year.
The Company has a (pound)15.0 million (approximately $25.2 million)
line of credit which is guaranteed by certain of the Company's U.K.
subsidiaries. Interest is charged at the bank's base rate (7.25% at December 31,
1997), plus 1%, with a minimum of 5.5%. The line of credit had an outstanding
balance of (pound)1.5 million (approximately $2.5 million) and (pound)4.7
million (approximately $6.6 million) at December 31, 1997 and 1996,
respectively.
39
<PAGE> 19
NOTES (continued)
5. CREDIT ARRANGEMENTS AND OBLIGATIONS (continued)
The Company has a (pound)5.0 million (approximately $8.4 million) line
of credit with a second U.K. bank. The line of credit is charged interest at the
bank's published base rate (7.25% at December 31, 1997) plus 1.5%. The line of
credit had an outstanding balance of (pound)4.7 million (approximately $7.8
million) and (pound)1.4 million (approximately $2.4 million) at December 31,
1997 and 1996, respectively.
In March 1995, Quintiles Scotland Limited, a wholly-owned subsidiary of
the Company, acquired assets of a drug development facility in Edinburgh,
Scotland from Syntex Pharmaceuticals Limited, a member of the Roche group based
in Basel, Switzerland for a purchase commitment valued at (pound)13.0 million
(approximately $21.0 million), with payment due in December 1999. As of December
31, 1997 and 1996, the Company has committed to purchasing approximately
(pound)1.5 million (approximately $2.3 million) and (pound)600,000
(approximately $852,000 ), respectively, under foreign exchange contracts. The
Company is obligated to purchase up to an additional (pound)5.9 million through
December 28, 1999 in varying amounts as the daily dollar-to-pound exchange rate
ranges between $1.5499 and $1.6800.
Long-term debt and obligation consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1996
---- ----
<C> <C> <C>
4.25% Convertible Subordinated Notes due 2000 .... $143,750 $143,750
Employee Stock Ownership Plan notes payable due
1997......................................... -- 1,138
Other notes payable............................... 23 1,953
Long-term obligation.............................. 20,985 21,823
-------- --------
164,758 168,664
Less: current portion........................ 23 1,897
unamortized issuance costs.......... 2,535 3,482
-------- --------
$162,200 $163,285
</TABLE>
Maturities of long-term debt and obligation at December 31, 1997 are as
follows (in thousands):
<TABLE>
<S> <C>
1998 $ 23
1999 20,985
2000 143,750
--------
$164,758
========
</TABLE>
6. INVESTMENTS
The following is a summary as of December 31, 1997 of held-to-maturity
securities and available-for-sale securities by contractual maturity where
applicable (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
HELD-TO-MATURITY SECURITIES: COST GAINS LOSSES VALUE
---------------------------- ---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government Securities --
Maturing in one year or less $ 5,892 $ 15 $ -- $ 5,907
Maturing between one and three years 2,814 16 -- 2,830
State and Municipal Securities --
Maturing in one year or less 2,688 9 -- 2,697
Maturing between one and three years 2,329 17 -- 2,346
Other 2,312 97 -- 2,409
------- ------- ------- -------
$16,035 $ 154 $ -- $16,189
======= ======= ======= =======
</TABLE>
40
<PAGE> 20
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE GROSS GROSS
------------------ AMORTIZED UNREALIZED UNREALIZED MARKET
SECURITIES: COST GAINS LOSSES VALUE
----------- ---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government Securities --
Maturing in one year or less $ 2,499 $ -- $ -- $ 2,499
Maturing between one and three years 52,061 -- (57) 52,004
Maturing between three and five years 7,000 5 -- 7,005
State and Municipal Securities --
Maturing in one year or less 3,060 -- -- 3,060
Maturing between one and three years -- -- -- --
Maturing between three and five years 2,595 30 -- 2,625
Money Funds 30,301 -- (68) 30,233
-------- -------- -------- --------
$ 97,516 $ 35 $ (125) $ 97,426
======== ======== -------- --------
</TABLE>
The following is a summary as of December 31, 1996 of held-to-maturity
securities and available-for-sale securities by contractual maturity where
applicable (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
HELD-TO-MATURITY AMORTIZED UNREALIZED UNREALIZED MARKET
SECURITIES: COST GAINS LOSSES VALUE
----------- ---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government Securities --
Maturing in one year or less $ 5,707 $ -- $ -- $ 5,707
Maturing between one and three years 9,951 -- -- 9,951
State and Municipal Securities --
Maturing in one year or less 22,327 -- -- 22,327
Maturing between one and three years 5,065 -- -- 5,065
Other 8,564 -- -- 8,564
-------- -------- -------- --------
$ 51,614 $ -- $ -- $ 51,614
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AVAILABLE-FOR-SALE AMORTIZED UNREALIZED UNREALIZED MARKET
SECURITIES: COST GAINS LOSSES VALUE
----------- ---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government Securities --
Maturing between one and three years $ 10,008 $ 59 $ -- $ 10,067
Money Funds 1,019 6 -- 1,025
-------- -------- -------- --------
$ 11,027 $ 65 -- $ 11,092
======== ======== ======== ========
</TABLE>
41
<PAGE> 21
NOTES (continued)
7. ACCOUNTS RECEIVABLE AND UNBILLED SERVICES
Accounts receivable consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1996
---- ----
<S> <C> <C>
Trade:
Billed $ 122,898 $ 121,803
Unbilled services 77,613 52,772
--------- ---------
200,511 174,575
Other 11,753 10,759
Allowance for doubtful
accounts (1,820) (2,046)
--------- ---------
$ 210,444 $ 183,288
========= =========
</TABLE>
The Company provides professional services involved in the development,
testing, approval, sale and marketing of new drugs. Substantially all of the
Company's accounts receivable are due from companies in the pharmaceutical and
biotechnology industries located in the Americas and Europe. The percentage of
accounts receivable and unbilled services by region is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
REGION 1997 1996
------ ---- ----
<S> <C> <C>
Americas 48% 45%
Europe and Africa 50 53
Asia-Pacific 2 2
--- ---
100% 100%
</TABLE>
8. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1996
---- ----
<S> <C> <C>
Compensation and payroll taxes ...... $29,818 $22,621
Transaction and restructuring costs.. 2,751 16,047
Other ............................... 28,283 15,724
------- -------
$60,852 $54,392
======= =======
</TABLE>
9. LEASES
The Company leases certain office space and equipment under operating
leases. The leases expire at various dates through 2049 with options to cancel
certain leases at five-year increments. Some leases contain renewal options.
Annual rental expenses under these agreements were approximately $24.3 million,
$21.0 million and $10.4 million for the years ended December 31, 1997, 1996 and
1995, respectively. The Company leases certain assets, primarily vehicles, under
capital leases. Capital lease amortization is included with depreciation and
amortization expenses and accumulated depreciation in the accompanying financial
statements.
42
<PAGE> 22
The following is a summary of future minimum payments under capitalized
leases and under operating leases that have initial or remaining noncancelable
lease terms in excess of one year at December 31, 1997 (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------ ------
<S> <C> <C>
1998 ................................. $ 16,600 $ 28,441
1999 ................................. 8,156 22,887
2000 ................................. 9 18,530
2001 ................................. -- 13,958
2002 ................................. -- 12,223
Thereafter ........................... -- 47,512
-------- --------
Total minimum lease payments ......... 24,765 $143,551
========
Amounts representing interest ........ 1,757
--------
Present value of net minimum payments 23,008
Current portion ...................... 14,844
--------
Long-term capital lease obligations .. $ 8,164
========
</TABLE>
10. INCOME TAXES
The components of income tax expense are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current:
FEDERAL ................. $ 11,153 $ 5,185 $ 4,313
STATE ................... 2,655 1,735 856
FOREIGN ................. 6,452 5,839 2,345
-------- -------- --------
20,260 12,759 7,514
DEFERRED EXPENSE (BENEFIT):
FEDERAL ................. 7,506 (682) 598
FOREIGN ................. 2,496 1,938 1,181
-------- -------- --------
$ 30,262 $ 14,015 $ 9,293
======== ======== ========
</TABLE>
Tax benefits of $62.7 million from goodwill arising in connection with a
taxable pooling of interests business combination and $20.1 million from
non-qualified stock options exercised were allocated directly to contributed
capital.
The Company's consolidated effective tax rate differed from the statutory
rate as set forth below (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal taxes at statutory rate $ 29,952 $ 7,992 $ 8,636
State and local income taxes net of federal benefit 1,726 1,040 653
Non-deductible transaction costs -- 4,761 --
Foreign earnings taxed at different rates 418 (191) (14)
Foreign losses for which no benefit has been recognized -- -- 646
Utilization of net operating loss carryforwards (636) -- (1,520)
Non-taxable income (1,521) -- --
Other 323 413 892
-------- -------- --------
$ 30,262 $ 14,015 $ 9,293
======== ======== ========
</TABLE>
43
<PAGE> 23
NOTES (continued)
10. INCOME TAXES (continued)
Income before income taxes from foreign operations was approximately $4
million, $24 million and $11 million for the years 1997, 1996 and 1995,
respectively. Income from foreign operations was approximately $35 million, $25
million and $14 million for the years 1997, 1996 and 1995, respectively. The
difference between income from operations and income before income taxes is due
primarily to intercompany charges which eliminate upon consolidation.
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $38 million at December 31, 1997. Those earnings are considered to
be indefinitely reinvested, and accordingly, no U.S. federal and state income
taxes have been provided thereon. Upon distribution of those earnings in the
form of dividends or otherwise, the Company would be subject to both U.S. income
taxes (subject to an adjustment for foreign tax credits) and withholding taxes
payable to the various countries.
The tax effects of temporary differences that give rise to significant
portions of deferred tax (assets) liabilities are presented below (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1997 1996
---- ----
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization $ 24,031 $ 16,359
Prepaid expenses 1,335 1,034
Other 2,318 213
--------- ---------
Total deferred tax liabilities 27,684 17,606
Deferred tax assets:
Net operating loss carryforwards (17,532) (7,028)
Accrued expenses and unearned income (7,104) (5,345)
Goodwill net of amortization (101,095) (675)
Non-deductible transaction costs -- (2,206)
Other (4,783) (2,445)
--------- ---------
Total deferred tax assets (130,514) (17,699)
Valuation allowance for deferred tax assets 54,879 4,840
--------- ---------
Net deferred tax assets (75,635) (12,859)
--------- ---------
Net deferred tax (assets) liabilities $ (47,951) $ 4,747
========= =========
</TABLE>
The increase in the Company's valuation allowance for deferred tax
assets to $54.9 million at December 31, 1997 from $4.8 million at December 31,
1996 is primarily due to projected foreign tax credit limitations.
The Company's deferred income tax expense results from the following
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Excess (deficiency) of tax over financial reporting:
Depreciation and amortization $ 14,936 $ 9,414 $ 1,681
Net operating loss carryforwards (6,693) (1,907) 1,025
Accrued expenses and unearned income (1,084) (4,417) 110
Benefit plans -- -- (656)
Other items, net 2,843 (1,834) (381)
-------- -------- --------
$ 10,002 $ 1,256 $ 1,779
======== ======== ========
</TABLE>
The U.K. subsidiaries qualify for Scientific Research Allowances (SRAs)
for 100% of capital expenditures on certain assets under the Inland Revenue
Service guidelines. For 1997, 1996 and 1995, these allowances were $28 million,
$11 million and $6 million, respectively, which helped to generate net operating
loss carryforwards of $26 million to be used to offset taxable income in that
country. Assuming the U.K. subsidiaries continue to invest in qualified capital
expenditures at an adequate level, the portion of the deferred tax liability
relating to the U.K. subsidiaries may be deferred indefinitely. Innovex has
German net operating loss carryforwards that do not expire of $3 million to be
used to offset taxable income in that country. Quintiles Transnational has U.S.
state net operating loss carryforwards of approximately $8 million which will be
available through 2002. In addition, Innovex, Inc. has U.S. federal net
operating loss carryforwards of approximately $4 million which will expire
beginning 2005.
44
<PAGE> 24
11. EMPLOYEE BENEFIT PLANS
The Company has numerous employee benefit plans which cover
substantially all eligible employees in the countries in which the plans are
offered. Contributions are primarily discretionary, except in some countries
where contributions are contractually required. Plans include Approved Profit
Sharing Schemes in the U.K. and Ireland which are funded with Company stock, a
defined contribution plan funded by Company stock in Australia, Belgium and
Canada, defined contribution plans in Belgium, Holland, Sweden, and Great
Britain, a profit sharing scheme in France, and defined benefit plans in Germany
and the U.K. The defined benefit plan in Germany is an unfunded plan which is
provided for in the balance sheet. In addition, the Company sponsors a
supplemental non-qualified deferred compensation plan, covering certain
management employees.
The Company has a leveraged Employee Stock Ownership Plan ("ESOP")
which provides benefits to eligible employees. Contributions and related
compensation expenses for this plan totaled $568,000, $585,000 and $734,000 in
1997, 1996 and 1995, respectively. Interest paid by the Company on the ESOP loan
was approximately $80,000, $130,000 and $157,000 for 1997, 1996 and 1995,
respectively. Shares allocated to participants totaled 1,773,000 at December 31,
1997. Unallocated shares totaled 152,100 as of December 31, 1997 with a fair
market value of $5.8 million.
The Company has an employee savings and investment plan (401(k) Plan)
available to all eligible employees meeting certain specified criteria. The
Company matches employee deferrals at varying percentages, set at the discretion
of the Board of Directors. For the years ended December 31, 1997, 1996 and 1995,
the Company expensed $1.5 million, $539,000 and $177,000, respectively as
matching contributions.
On July 25, 1996, the Company's Board of Directors adopted the
Quintiles Transnational Corp. Employee Stock Purchase Plan (the "Purchase Plan")
which is intended to provide eligible employees an opportunity to acquire the
Company's Common Stock. Participating employees have the option to purchase
shares at 85% of the lower of the closing price per share of common stock on the
first or last day of the calendar quarter. The Purchase Plan is intended to
qualify as an "employee stock purchase plan" under Section 423 of the Internal
Revenue Code of 1986, as amended. The Board of Directors has reserved 200,000
shares of common stock for issuance under the Purchase Plan. During 1997 and
1996, 81,024 shares and 9,576 shares, respectively, were purchased under the
Purchase Plan. At December 31, 1997, 109,400 shares were available for issuance
under the Purchase Plan.
The Company has stock option plans to provide incentives to eligible
employees, officers, and directors in the form of incentive stock options,
non-qualified stock options, stock appreciation rights, and restricted stock.
The Board of Directors determines the option price (not to be less than fair
market value of incentive options) at the date of grant. The majority of
options, granted under the Executive Compensation Plan, typically vest 25% per
year over four years, and expire ten years from the date of grant. Other options
including options granted and exchanged as a result of acquisitions have various
vesting schedules and expiration periods.
45
<PAGE> 25
NOTES (continued)
11. EMPLOYEE BENEFIT PLANS (CONTINUED)
Information with respect to these option plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER EXERCISE PRICE
------ --------------
<S> <C> <C>
Options outstanding January 1, 1995 1,762,730 $ 3.91
Granted 1,162,476 13.42
Exercised (311,740) 2.58
Canceled (39,160) 5.17
----------
Outstanding at December 31, 1995 2,574,306 8.09
Granted 4,146,568 34.27
Exercised (1,334,836) 2.49
Canceled (416,264) 35.92
----------
Outstanding at December 31, 1996 4,969,774 15.52
Granted 2,234,387 36.82
Exercised (1,565,827) 7.78
Canceled (269,550) 24.34
----------
Outstanding at December 31, 1997 5,368,784 $26.21
==========
</TABLE>
Pro forma information regarding net income and net income per share is
required by Statement No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of
Statement No. 123. The fair value for each option was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
EMPLOYEE STOCK OPTIONS EMPLOYEE STOCK PURCHASE PLAN
---------------------- ----------------------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Expected dividend yield 0% 0% 0% 0% -- --
Risk-free interest rate 6% 6% 6% 5.1% -- --
Expected volatility 40% 40% 40% 34.4% -- --
Expected life (in years from vest) 1 1 1 0.25 -- --
</TABLE>
For options outstanding and exercisable at December 31, 1997 the
following number of options, range of exercise prices, weighted average exercise
prices and weighted average contractual lives existed:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------- -------------------
NUMBER OF WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE EXERCISE PRICE CONTRACTUAL LIFE OPTIONS EXERCISE PRICE
------- -------------- -------------- ---------------- ------- --------------
<S> <C> <C> <C> <C> <C>
646,196 $ 0.20 - $ 4.75 $ 3.31 4.6 635,696 $ 3.29
557,886 $ 4.88 - $ 9.50 7.92 6.5 342,886 6.95
762,060 $10.69 - $20.68 18.64 7.1 274,174 17.46
721,574 $22.61 - $32.69 31.19 7.1 271,794 31.34
684,062 $33.13 - $33.13 33.13 9.0 311,628 33.13
616,469 $33.88 - $36.63 35.66 8.6 8,387 35.87
239,693 $36.75 - $38.19 37.91 9.1 212,953 37.98
1,002,162 $38.25 - $38.25 38.25 10.0 0 N.A.
130,682 $38.50 - $41.13 38.88 6.3 54,712 38.52
8,000 $41.38 - $41.38 41.38 9.7 5,000 41.38
--------- ---------
5,368,784 $26.21 7.8 2,117,230 $18.33
========= =========
</TABLE>
The Black-Scholes valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
transferable. In addition, the option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options and changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
46
<PAGE> 26
For purposes of pro forma disclosures, the estimated fair values of the
Purchase Plan and stock option plans are amortized to expense over the vesting
period. The grant date Black-Scholes weighted-average value was $13.37, $4.41
and $4.38 per share for 1997, 1996 and 1995.
The Company's pro forma information follows (in thousands except for
net income (loss) per share information):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income available for common shareholders $55,316 $ 7,097 $15,349
Pro forma net income (loss) available for
common shareholders 40,280 (3,142) 14,595
Pro forma basic net income (loss) per share 0.56 (0.05) 0.24
Pro forma diluted net income (loss) per share $ 0.54 $ (0.05) $ 0.23
</TABLE>
12. OPERATIONS
The following table presents the Company's operations by geographical
location (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net revenue:
Americas...................... $ 414,401 $ 240,118 $ 134,350
Europe and Africa............. 377,382 301,398 195,669
Asia-Pacific.................. 22,693 12,711 6,987
--------- --------- ---------
$ 814,476 $ 554,227 $ 337,006
========= ========= =========
Income (loss) from operations:
Americas...................... $ 52,541 $ 17,158 $ 12,469
Europe and Africa............. 34,905 25,262 14,515
Asia-Pacific.................. 253 16 (440)
--------- --------- ---------
$ 87,699 $ 42,436 $ 26,544
========= ========= =========
Identifiable assets:
Americas...................... $ 529,915 $ 270,770 $ 154,273
Europe and Africa............. 252,100 252,863 184,313
Asia-Pacific.................. 16,883 8,944 5,176
--------- --------- ---------
$ 798,898 $ 532,577 $ 343,762
========= ========= =========
</TABLE>
47
<PAGE> 27
NOTES (continued)
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly results of operations
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenue $ 179,885 $ 194,180 $ 206,697 $ 233,714
Income from operations 18,931 21,111 22,494 25,163
Net income available for
common shareholders 11,479 12,863 14,207 16,767
Basic net income per share 0.16 0.18 0.19 0.23
Diluted net income per share $ 0.16 $ 0.17 $ 0.19 $ 0.22
Range of stock prices $26.625 - 39.000 $21.500 - 35.000 $35.032 - 43.688 $31.000 - 43.500
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenue $ 113,813 $ 131,328 $ 141,916 $ 167,170
Income from operations 7,979 12,900 14,659 6,898
Net income available for
common shareholders 4,798 7,551 8,562 (13,814)
Basic net income per share 0.07 0.11 0.13 (0.21)
Diluted net income per share $ 0.07 $ 0.11 $ 0.12 $ (0.21)
Range of stock prices $18.500 - 34.625 $28.250 - 41.000 $26.250 - 41.625 $29.125 - 41.625
</TABLE>
The following pro forma quarterly financial information reflects
results of operations excluding non-recurring costs (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenue $179,885 $194,180 $206,697 $233,714
Income from operations 18,931 21,111 22,494 25,163
Net income available for
common shareholders $ 11,479 $ 12,863 $ 14,207 $ 16,767
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenue $113,813 $131,328 $141,916 $167,170
Income from operations 12,681 12,900 14,659 17,627
Net income available for
common shareholders $ 8,386 $ 7,551 $ 8,562 $ 10,354
</TABLE>
48
<PAGE> 28
14. SUBSEQUENT EVENTS
On February 2, 1998, the Company acquired Pharma Networks N.V.
("Pharma"), a leading contract sales organization in Belgium. The Company
acquired Pharma in exchange for 132,000 shares of the Company's Common Stock.
The acquisition of Pharma will be accounted for as a pooling of interests.
On February 4, 1998, the Company acquired Technology Assessment Group
("TAG"), an international health outcomes assessment firm that specializes in
patient registries and in evaluating the economic, quality-of-life and clinical
effects of drug therapies and disease management programs. The Company acquired
TAG in exchange for 460,366 shares of the Company's Common Stock. The
acquisition of TAG will be accounted for as a pooling of interests.
On February 26, 1998, the Company acquired T2A S.A. ("T2A"), a leading
French contract sales organization. The Company acquired T2A in exchange for
311,899 shares of the Company's Common Stock. The acquisition of T2A will be
accounted for as a pooling of interests.
49
<PAGE> 29
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS OF QUINTILES TRANSNATIONAL CORP.
We have audited the accompanying consolidated balance sheets of
Quintiles Transnational Corp. and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the 1995 consolidated financial statements of
BRI International, Inc. and Innovex Limited, each of which was combined with the
Company in 1996 in transactions accounted for as poolings of interests. The two
businesses represent 33.0% and 49.6% of the consolidated assets and net revenues
for 1995, respectively. Those statements were audited by other auditors whose
reports have been provided to us, and our opinion, insofar as it relates to
amounts included for BRI International, Inc. and Innovex Limited for 1995, is
based on the reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Quintiles Transnational Corp.
and subsidiaries at December 31, 1997 and 1996, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
RALEIGH, NORTH CAROLINA
JANUARY 26, 1998
50
<PAGE> 30
CORPORATE INFORMATION
CORPORATE OFFICES
Quintiles Transnational Corp.
Location address:
4709 Creekstone Drive
Riverbirch Building
Suite 200
Durham, North Carolina 27703-8411
Mailing address:
Post Office Box 13979
Research Triangle Park
North Carolina 27709-3979
Telephone: (919) 941-2000
Facsimile: (919) 941-9113
SECURITIES INFORMATION
The Company's Common Stock commenced trading on April 20, 1994, on the NASDAQ
National Market System under the symbol QTRN. At January 31, 1998, there were
approximately 7,500 beneficial shareholders.
The Company has never declared or paid any cash dividends on its Common Stock.
The Company does not anticipate paying any cash dividends in the foreseeable
future, and it intends to retain future earnings for the development and
expansion of its business.
SEC FORM 10-K AVAILABLE TO SHAREHOLDERS
A copy of the Company's Form 10-K and additional investor materials may be
obtained without charge by contacting Investor Relations.
INVESTOR RELATIONS
Quintiles Transnational Corp.
Greg Connors
Vice President, Corporate Development
(919) 941-2009
e-mail: [email protected]
ANNUAL MEETING
The annual meeting of shareholders will be held on May 6, 1998 at the Marriott
at Research Triangle Park, North Carolina, at 5:30 p.m.
TRANSFER AGENT AND REGISTRAR
First Union National Bank of North Carolina
Charlotte, North Carolina
Telephone: (704) 590-7382
INDEPENDENT AUDITORS
Arthur Andersen LLP
Raleigh, North Carolina
LEGAL COUNSEL
Smith, Anderson, Blount, Dorsett, Mitchell &
Jernigan, L.L.P.
Raleigh, North Carolina
SHAREHOLDER SERVICES
Quintiles Transnational Corp.
Vincent T. Morgus
Vice President, Finance and Treasurer
(919) 941-2010
email: [email protected]
FORWARD LOOKING STATEMENTS
Information in this annual report may contain "forward-looking statements."
These statements involve risks and uncertainties that could cause actual results
to differ materially, including without limitation, the ability of the combined
businesses to be integrated with Quintiles' historical operations, the actual
costs of the combining of the businesses, actual operating performance, the
ability to maintain large client contracts or to enter into new contracts and
the level of demand for services. Additional factors that could cause actual
results to differ materially are discussed in the Company's recent filings with
the Securities and Exchange Commission, including but not limited to its S-3 and
S-4 Registration Statements and its periodic reports.
51
<PAGE> 1
EXHIBIT 21.1
Quintiles Transnational Corp.
Schedule of Subsidiaries
- --------------------------------------------------------------------------------
Jurisdiction of Organization
----------------------------
BCA Corp. North Carolina
Benefit Canada Medico-Economic Studies, Inc. Canada
Benefit, Inc. North Carolina
BRI Quality Regulatory Alliance, Inc. Virginia
Innovex (North America) Inc. Delaware
Intelligent Imaging, Inc. Delaware
The Lewin Group, Inc. North Carolina
Quintiles Canada, Inc. Canada
Quintiles CVA, Inc. North Carolina
Quintiles, Inc. North Carolina
Quintiles Laboratories Limited North Carolina
Quintiles Latin America Inc. North Carolina
Quintiles Mexico S. de R.L. de C.V. Mexico
Quintiles Pacific, Inc. North Carolina
Quintiles Technologies, Inc. North Carolina
Servicios Clinicos, S.A. de C.V. Mexico
Lewin-TAG, Inc. California
The MSM Group, Inc. Delaware
AR-MED Limited England
Benefit International SNC France
Benefit Research Italia Italy
<PAGE> 2
BRI International Limited England
BRI International N.V. Belgium
BRI International S.A.R.L. France
Eminent Innovex International S.L. Spain
G.D.R.U. Limited England
The Lewin Group The Netherlands
Innovex Belgium N.V. Belgium
Innovex (Benelux) B.V. The Netherlands
Innovex (Biodesign) GmbH Germany
Innovex (France) SARL France
Innovex GmbH Germany
Innovex Nordic AB Sweden
Innovex S.r.l. Italy
Innovex (UK) Limited England
Medical Action Communications Ltd. England
Medical Technology Consultants England
MTCE France S.A.R.L. France
Novex Pharma Ltd. England
PHARM-OTC S.A.R.L France
Presta-Medica S.A.R.L France
Quintiles AB Sweden
Quintiles England Limited England
Quintiles GesmbH Austria
Quintiles GmbH Germany
Quintiles Ireland Limited Ireland
Quintiles N.V./S.A. Belgium
Quintiles S.A. France
<PAGE> 3
Quintiles Scotland Limited England
Quintiles s.l. Spain
Quintiles S.r.l. Italy
Quintiles (UK) Limited England
T2A- Techniques D'Aide Aux Affaires SA France
T2A Promotion S.A.R.L. France
T2A Marketing S.A.R.L. France
T2A Recruitment S.A.R.L. France
SPECI-PLUS S.A.R.L France
Strategic Medical Publishing Limited England
Alchemy Pharmaceuticals Pty. Limited Australia
Clindepharm International (Proprietary) Limited South Africa
Debra Chapman Consulting Group Pty. Limited Australia
Innovex South Africa Limited South Africa
Medical Alliances Pty. Limited Australia
More Biomedical Contract Research Organization Taiwan
Phytotherapy (Pty.) Limited South Africa
Quintiles Asia, Inc. North Carolina
Quintiles East Asia Pte Ltd. Singapore
Quintiles Hong Kong Limited Hong Kong
Quintiles Israel Ltd. Isreal
Quintiles Australia Pty. Limited Australia
Synapse Pharmaceuticals Pty. Limited Australia
<PAGE> 4
Action International Marketing Services Limited England
Benefit Holding, Inc. North Carolina
Benefit Transnational Holding Corp. North Carolina
BRI International Holdings N.V. Belgium
Clindepharm Holdings (Pty.) Limited South Africa
Innovex (DCCG) Holdings Pty. Limited Australia
Innovex Holdings Limited England
Innovex Limited England
Innovex Merger Corp. North Carolina
Innovex Overseas Holdings Limited England
Quintiles European Holdings Limited England
Penderwood Limited England
PharmaBio Development, Inc. North Carolina
Quintiles Holdings Limited England
Quintiles Holding SNC France
Quintiles Mauritius Holding, Inc. Mauritius
Quintiles Ireland (Finance) Limited Ireland
Quintiles Spectral Limited India
Ethical Contact Ltd. England
Health Care Research AG Sweden
Health Care Research UK Limited England
<PAGE> 5
Histological Services Limited England
Innovex Medical Products Ltd. England
International Clinical Research Limited England
Medical Action Communications Publishing Limited England
Medical Action Research Limited England
The Clinical Research Foundation (UK) Ltd. England
Q98 Corp. North Carolina
BRI International Holdings N.V. Belgium
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report on
Form 10-K of Quintiles Transnational Corp. of our report dated January 26, 1998
included in the 1997 Annual Report to Shareholders of Quintiles Transnational
Corp.
We also consent to the incorporation by reference into the
Registration Statements on Form S-8 (Nos. 33-91026, 333-16553,
333-03603 and 333-40493) and the Registration Statements on Form S-3
(Nos. 333-19009, 333-28919, 333-38181, 333-40497 and 333-48403) of
our report dated January 26, 1998, with respect to the consolidated financial
statements incorporated by reference in this Annual Report on Form 10-K of
Quintiles Transnational Corp. for the year ended December 31, 1997.
/s/ Ernst & Young LLP
Raleigh, North Carolina
March 27, 1998
<PAGE> 1
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference into the Quintiles
Transnational Corp. Registration Statements on Form S-8 (Registration Nos.
33-91026, 333-03603, 333-16553 and 333-40493) and the Registration Statements on
Form S-3 (Registration Nos. 333-19009, 333-28919, 333-38181, 333-40497 and
333-48403) of our report dated May 15, 1996, on our audits of the consolidated
financial statements of BRI International, Inc. as of November 30, 1995 and
1994, and for the years then ended, which report is included as an exhibit in
this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
McLean, Virginia
March 27, 1998
<PAGE> 1
EXHIBIT 23.03
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference into the Registration Statements of
Quintiles Transnational Corp. on Form S-8 (Registration Nos. 33-91026,
333-16553, 333-03603 and 333-40493) and the Registration Statements on Form S-3
(Registration Nos. 333-19009, 333-28919, 333-38181, 333-40497 and 333-48403) of
our report dated July 24, 1996, with respect to the combined financial
statements of the Innovex Companies which report is included as Exhibit 99.03 to
the Annual Report on Form 10-K of Quintiles Transnational Corp. for the fiscal
year ended December 31, 1997 filed with the Securities and Exchange Commission.
/s/ KPMG
Reading, England
March 27, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF QUINTILES TRANSNATIONAL CORPORATION FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 75,186
<SECURITIES> 36,223
<RECEIVABLES> 213,665
<ALLOWANCES> 1,376
<INVENTORY> 0
<CURRENT-ASSETS> 353,601
<PP&E> 236,059
<DEPRECIATION> 71,483
<TOTAL-ASSETS> 726,502
<CURRENT-LIABILITIES> 212,526
<BONDS> 172,084
0
0
<COMMON> 367
<OTHER-SE> 337,729
<TOTAL-LIABILITY-AND-EQUITY> 726,502
<SALES> 0
<TOTAL-REVENUES> 580,762
<CGS> 0
<TOTAL-COSTS> 518,226
<OTHER-EXPENSES> (4,899)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,784
<INCOME-PRETAX> 60,651
<INCOME-TAX> 22,102
<INCOME-CONTINUING> 38,549
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,549
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.52
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF QUINTILES TRANSNATIONAL CORPORATION FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BE REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 106,065
<SECURITIES> 29,297
<RECEIVABLES> 209,015
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 367,323
<PP&E> 223,761
<DEPRECIATION> 69,632
<TOTAL-ASSETS> 708,566
<CURRENT-LIABILITIES> 214,666
<BONDS> 148,769
0
0
<COMMON> 363
<OTHER-SE> 318,573
<TOTAL-LIABILITY-AND-EQUITY> 708,566
<SALES> 0
<TOTAL-REVENUES> 374,065
<CGS> 0
<TOTAL-COSTS> 334,023
<OTHER-EXPENSES> (3,145)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,201
<INCOME-PRETAX> 38,986
<INCOME-TAX> 14,644
<INCOME-CONTINUING> 24,342
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,342
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.33
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF QUINTILES TRANSNATIONAL CORPORATION FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 179,885
<CGS> 0
<TOTAL-COSTS> 160,954
<OTHER-EXPENSES> (1,931)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,654
<INCOME-PRETAX> 18,208
<INCOME-TAX> 6,729
<INCOME-CONTINUING> 11,479
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,479
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF QUINTILES TRANSNATIONAL CORPORATION FOR THE YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 68,730
<SECURITIES> 37,623
<RECEIVABLES> 183,288
<ALLOWANCES> 2,046
<INVENTORY> 0
<CURRENT-ASSETS> 302,509
<PP&E> 180,523
<DEPRECIATION> 55,289
<TOTAL-ASSETS> 532,577
<CURRENT-LIABILITIES> 203,199
<BONDS> 168,750
0
0
<COMMON> 342
<OTHER-SE> 150,203
<TOTAL-LIABILITY-AND-EQUITY> 532,577
<SALES> 0
<TOTAL-REVENUES> 554,227
<CGS> 0
<TOTAL-COSTS> 511,791
<OTHER-EXPENSES> 10,013
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,526
<INCOME-PRETAX> 22,897
<INCOME-TAX> 14,015
<INCOME-CONTINUING> 8,882
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,097
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.10
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF QUINTILES TRANSNATIONAL CORPORATION FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 387,057
<CGS> 0
<TOTAL-COSTS> 351,518
<OTHER-EXPENSES> (1,267)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,824
<INCOME-PRETAX> 33,982
<INCOME-TAX> 11,764
<INCOME-CONTINUING> 22,218
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,218
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.30
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF QUINTILES TRANSNATIONAL CORPORATION FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BE REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 245,141
<CGS> 0
<TOTAL-COSTS> 224,262
<OTHER-EXPENSES> (2,295)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,824
<INCOME-PRETAX> 20,351
<INCOME-TAX> 7,264
<INCOME-CONTINUING> 13,087
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,087
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
<PAGE> 1
EXHIBIT 99.1
RISK FACTORS
In addition to the other information contained or incorporated by
reference in this report, the following factors should be considered carefully
in evaluating the Company and its business. See also "Forward Looking
Statements."
DEPENDENCE ON CERTAIN INDUSTRIES AND CUSTOMERS
Quintiles' revenues are highly dependent upon the research and
development and sales and marketing expenditures of the pharmaceutical and
biotechnology industries. Quintiles has benefited to date from the growing
tendency of pharmaceutical and biotechnology companies to engage independent
outside organizations to conduct large clinical research and sales and marketing
projects. Quintiles' operations could be materially and adversely affected by a
general economic decline in these industries or by any reduction in the
outsourcing of development or sales and marketing expenditures. Quintiles has in
the past derived, and may in the future derive, a significant portion of its net
revenue from a relatively limited number of major projects or customers. In
1997, 10 customers accounted for approximately 46% of Quintiles' consolidated
net revenue. As pharmaceutical companies continue to outsource large projects
and studies to fewer full-service global providers, the concentration of
business could increase. Quintiles is likely to continue to experience such
concentration in future years. The loss of a major project or any such customer
could materially and adversely affect Quintiles.
MANAGEMENT OF GROWTH
Quintiles has experienced rapid growth over the past 10 years.
Quintiles believes that its sustained growth places a strain on operational,
human and financial resources. In order to manage its growth, Quintiles must
continue to improve its operating and administrative systems and to attract and
retain qualified management, professional, scientific and technical personnel.
Foreign operations may involve the additional risks of assimilating differences
in foreign business practices, hiring and retaining qualified personnel, and
overcoming language barriers. Quintiles has a transnational organizational
structure, comprised of four service groups performing complementary functions,
with a holding company performing management functions. While this transnational
structure has successfully supported Quintiles' growth to date, Quintiles
recently has completed a number of acquisitions, and there can be no assurance
that this structure will continue to be effective. Failure to manage growth
effectively could have a material adverse effect on Quintiles.
ACQUISITION RISKS
Acquisitions involve numerous risks, including difficulties and
expenses incurred in connection with the acquisition and the assimilation of the
operations and services of the acquired companies, the diversion of management's
attention from other business concerns and the potential loss of key employees
of the acquired companies. Acquisitions of foreign companies also may involve
the additional risks of assimilating differences in foreign business practices
and overcoming language barriers. Since January 1, 1998, Quintiles has completed
several acquisitions, both within the United States and internationally. There
can be no assurance that Quintiles' past and any future acquisitions will be
successfully integrated into its operations. Quintiles reviews many acquisition
candidates in the ordinary course of business, and Quintiles continually is
evaluating new acquisition opportunities. Quintiles expects to continue to
evaluate and compete for suitable acquisition candidates. There can be no
assurance that Quintiles will successfully complete future acquisitions or that
acquisitions, if completed, will contribute favorably to Quintiles' operations
and future financial condition. Although Quintiles performs due diligence
investigations on each company or business it seeks to acquire, there may be
liabilities that Quintiles fails or is unable to discover for which Quintiles,
as a successor owner, may be liable. Quintiles generally seeks to minimize its
exposure to such liabilities by obtaining indemnification from each seller,
which may be supported by deferring payment of a portion of the purchase price.
However, there is no assurance that such indemnifications, even if obtainable,
enforceable and collectible (as to which there also is no assurance), will be
sufficient in amount, scope or duration to offset fully the potential
liabilities arising from the acquisitions.
<PAGE> 2
RISKS RELATING TO CONTRACT SALES SERVICES
Outsourced contract sales services is a relatively new industry in some
countries in which Quintiles does business. Quintiles believes that the contract
sales industry emerged in the 1980s because of regulatory cost containment
pressure on pharmaceutical companies. As a result, large pharmaceutical
companies began to outsource their sales and marketing activities incident to
product launch. There is a relatively low level of market penetration for
outsourced sales and marketing services in many countries, including the United
States. As such, companies in this industry are subject to all of the risks
inherent in a new or emerging industry, including an inability to attract and
retain customers, changes in the regulatory regime, an absence of an established
earnings history, the availability of adequately trained sales representatives
and additional and unforeseen costs and expenses.
COMPETITION; INDUSTRY CONSOLIDATION
The market for Quintiles' contract research services is highly
competitive, and Quintiles competes against traditional contract research
organizations, the in-house research and development departments of
pharmaceutical companies, as well as universities and teaching hospitals. In
sales and marketing services, Quintiles competes against the in-house sales and
marketing departments of pharmaceutical companies and other contract sales
organizations in each country in which it operates. Quintiles also competes
against consulting firms offering healthcare consulting services and medical
communications services, including boutique firms specializing in the healthcare
industry and the healthcare departments of large firms. Expansion by these
competitors into other areas in which Quintiles operates could affect Quintiles'
competitive position. Increased competition may lead to price and other forms of
competition that may affect Quintiles' margins. Consolidation within the
pharmaceutical industry, as well as a trend by pharmaceutical companies to limit
outsourcing to fewer organizations, has heightened the competition for contract
research and contract sales services. As a result, consolidation also has
occurred among the providers of contract research and contract sales services.
If these consolidation trends continue, they may result in greater competition
among the larger contract research and contract sales providers for customers
and acquisition candidates.
LOSS OR DELAY OF LARGE CONTRACTS; VARIABILITY OF BACKLOG; FIXED PRICE NATURE OF
CONTRACTS
Most of Quintiles' contracts are terminable upon 15-90 days' notice by
the customer. Although the contracts typically provide for payment of certain
fees for winding down the project and, in some cases, a termination fee, the
loss or delay of a large contract or the loss or delay of multiple contracts
could adversely affect Quintiles' future net revenue and profitability. In
addition, Quintiles reports backlog based on anticipated net revenue from
uncompleted projects which have been authorized by the customer. Backlog may be
affected by a number of factors, including the variable size and duration of
projects, many of which are performed over several years, the loss or delay of
projects, or a change in the scope of work during the course of a project. There
can be no assurance that backlog will be indicative of future results.
Furthermore, since most of Quintiles' contracts for the provision of its
services are fixed price, fixed price with variable components or
fee-for-service subject to a cap, Quintiles bears the risk of cost overruns.
Underpricing of contracts or significant cost overruns could have a material
adverse effect on Quintiles.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or data corruption causing disruptions of operations,
including, among other things, a temporary inability to process transactions or
engage in similar business activities.
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The Company's computing infrastructure is based upon industry standard
systems. The Company is not dependent on large legacy systems and does not use
mainframes. Many of the specially developed systems the Company uses have been
developed within the past few years and are Year 2000 compliant.
The Company has appointed a Year 2000 Project Team to conduct an
assessment of the Company's operations worldwide from an internal, supplier and
customer perspective. The assessment, which is currently in progress, addresses
all computer systems, applications and any other systems that may be vulnerable
to the Year 2000 Issue. As part of the assessment, the Company is preparing
detailed plans to address Year 2000 Issues. The Company is utilizing both
internal and external resources to implement the plans. The Company currently
anticipates addressing all business critical systems during 1998 and will
address follow-up issues and all remaining systems during 1999. The Company's
assessment of Year 2000 Issues is ongoing and there can be no assurance that
Year 2000 Issues or the costs of addressing them will not have a material impact
on the Company's financial statements, business or operations.
DEPENDENCE ON PERSONNEL
Quintiles relies on a number of key executives, including Dennis B.
Gillings, Ph.D., its Chairman of the Board of Directors and Chief Executive
Officer. Quintiles maintains key man life insurance on Dr. Gillings in the
amount of $3 million. The loss of the services of any key executive could have a
material adverse effect on Quintiles. In addition, Quintiles' performance
depends on its ability to attract and retain qualified management and
professional, scientific and technical operating staff, as well as its ability
to recruit qualified representatives for its contract sales services. There can
be no assurance that Quintiles will be able to continue to attract and retain
qualified personnel.
POTENTIAL LIABILITY
In connection with its provision of contract research services,
Quintiles contracts with physicians to serve as investigators in conducting
clinical trials to test new drugs on human volunteers. Such testing creates risk
of liability for personal injury to or death of volunteers, particularly to
volunteers with life-threatening illnesses, resulting from adverse reactions to
the drugs administered. Although Quintiles does not believe it is legally
accountable for the medical care rendered by third party investigators, it is
possible that Quintiles could be held liable for the claims and expenses arising
from any professional malpractice of the investigators with whom it contracts or
in the event of personal injury to or death of persons participating in clinical
trials. In addition, as a result of its Phase I clinical trial facilities,
Quintiles could be liable for the general risks associated with a Phase I
facility including, but not limited to, adverse events resulting from the
administration of drugs to clinical trial participants or the professional
malpractice of Phase I medical care providers. Quintiles also could be held
liable for errors or omissions in connection with the services it performs
through each of its service groups. Quintiles believes that its risks are
reduced by contractual indemnification provisions with customers and
investigators, insurance maintained by customers and investigators and by
Quintiles, various regulatory requirements, including the use of institutional
review boards and the procurement of each volunteer's informed consent to
participate in the study. The contractual indemnifications generally do not
fully protect Quintiles against certain of its own actions such as negligence.
The contractual arrangements are subject to negotiation with customers and the
terms and scope of such indemnification vary from customer to customer and from
trial to trial. The financial performance of any of these indemnities is not
secured. Therefore, Quintiles bears the risk that the indemnifying party may not
have the financial ability to fulfill its indemnification obligations. Quintiles
maintains professional liability insurance that covers worldwide territories in
which Quintiles currently does business and includes drug safety issues as well
as data processing errors and omissions. There can be no assurance that
Quintiles will be able to maintain such insurance coverage on terms acceptable
to Quintiles or that such insurance will cover all losses. Quintiles could be
materially and adversely affected if it were required to pay damages or bear the
costs of defending any claim outside the scope of or in excess of a contractual
indemnification provision or beyond the level of insurance coverage or in the
event that an indemnifying party does not fulfill its indemnification
obligations.
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DEPENDENCE ON GOVERNMENT REGULATION
Quintiles' contract research business has benefited from the extensive
governmental regulation of the drug development process, particularly in the
United States. In Europe, the general trend has been towards establishing common
standards for clinical testing of new drugs, leading to changes in the various
requirements currently imposed by each country. Quintiles believes that the
level of regulation is generally less burdensome outside the United States. From
time to time legislation is introduced in the U.S. Congress to substantially
modify regulations administered by the Food and Drug Administration ("FDA")
governing the drug approval process. Changes in regulation in the United States
or elsewhere, including mandatory substitution of generic drugs for patented
drugs, relaxation in the scope of regulatory requirements or the introduction of
simplified drug approval procedures, could decrease the business opportunities
available to Quintiles. In addition, the failure on the part of Quintiles to
comply with applicable regulations could result in the termination of ongoing
clinical research or sales and marketing projects or the disqualification of
data for submission to regulatory authorities, either of which could have a
material adverse effect on Quintiles.
UNCERTAINTY IN HEALTHCARE INDUSTRY AND POSSIBLE HEALTHCARE REFORM
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the pharmaceutical, biotechnology and
medical device industries. Numerous governments have undertaken efforts to
control growing healthcare costs through legislation, regulation and voluntary
agreements with medical care providers and pharmaceutical companies.
Implementation of government healthcare reform may adversely affect research and
development expenditures by pharmaceutical, biotechnology and medical device
companies, which could decrease the business opportunities available to
Quintiles. Management is unable to predict the likelihood of healthcare reform
legislation being enacted or the effects such legislation would have on
Quintiles.
EXCHANGE RATE FLUCTUATIONS
Approximately 50.0%, 57.0%, and 60.1% of Quintiles' net revenue for the
years ended December 31, 1997, 1996, and 1995, respectively, were derived from
Quintiles' operations outside the United States. Quintiles' operations and
financial results could be significantly affected by factors associated with
international operations such as changes in foreign currency exchange rates and
uncertainties relative to regional economic circumstances, as well as by other
risks sometimes associated with international operations. Since the revenue and
expenses of Quintiles' foreign operations are generally denominated in local
currencies, exchange rate fluctuations between such local currencies and the
U.S. dollar will subject Quintiles to currency translation risk with respect to
the reported results of its foreign operations. Also, Quintiles may be subject
to foreign currency transaction risks when Quintiles' service contracts are
denominated in a currency other than the currency in which Quintiles incurs
expenses related to such contracts. Quintiles limits its foreign currency
transaction risks through exchange rate fluctuation provisions stated in its
contracts with customers, or Quintiles may hedge its transaction risk with
foreign currency exchange contracts or options. There can be no assurance that
Quintiles will not experience fluctuations in financial results from Quintiles'
operations outside the United States, and there can be no assurance Quintiles
will be able to contractually or otherwise favorably reduce its currency
transaction risk associated with its service contracts.
VARIATION IN QUARTERLY OPERATING RESULTS
Quintiles' results of operations have been and can be expected to be
subject to quarterly fluctuations. Quarterly results can fluctuate as a result
of a number of factors, including the timing of start-up expenses for new
offices, acquisitions, the completion or commencement of significant contracts,
changes in the mix of services offered and foreign exchange fluctuations.
Quintiles believes that quarterly comparisons of its financial results should
not be relied upon as an indication of future performance.
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VOLATILITY OF STOCK PRICE
The market price of Quintiles' Common Stock has been and may continue
to be subject to wide fluctuations in response to variations in operating
results from quarter to quarter, changes in earnings estimates by analysts,
market conditions in the industry and general economic conditions.
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EXHIBIT 99.02
Report of Independent Accountants
To the Board of Directors
of BRI International, Inc.
We have audited the accompanying consolidated balance sheet of BRI
International, Inc., formerly Biometric Research Institute, Inc., (the Company)
as of November 30, 1995 and 1994, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of BRI
International, Inc. as of November 30, 1995 and 1994, and the consolidated
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
Certain stockholders' equity amounts as of November 30, 1993 have been
restated to give effect to the pooling of interests described in Note 3 and to
correct for prior period adjustments described in Note 12.
/s/ Coopers & Lybrand L.L.P.
Rockville, Maryland
May 15, 1996
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EXHIBIT 99.03
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Innovex PLC and Innovex Holdings Limited
We have audited the combined income statement and statement of cash flows for
the year ended March 31, 1996 which comprise a combination of Innovex PLC and
Innovex Holdings Limited and its subsidiaries. These combined statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these combined statements based on our audits.
We conducted our audits in accordance with auditing standards in the United
Kingdom and the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the aforementioned combined statements present fairly, in all
material respects, the results of the operations of the Innovex Companies and
their cash flows for the year ended March 31, 1996 in conformity with generally
accepted accounting principles in the United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in certain
significant respects from generally accepted accounting principles in the United
States. Application of generally accepted accounting principles in the United
States would have affected the results of operations for the year ended March
31, 1996, to the extent summarized in Note 27 to the combined financial
statements.
Reading, England /s/ KPMG
July 24, 1996 Chartered Accountants
Registered Auditors
